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I PracticalEconomics I 

Z WHO GETS THE BENEFIT OF THE INCREASED PRODUCTIONS , T 

^ 1# 

^ OF HUMAN LABOR DUE TO MODERN INVENTIONS? # 

#j WHAT DETERMINES VALUE? # 

^1 Money. Panics. ^ 

Tp" I ^^ 

t Labor and Capital. Trusts. ^ 



Copyright, 1900, by Arthur Louis Sardy. 



CHICAGO : 
DONOHTJK BROS., 40T-42n DEARBORN STREET. 



Government Ownership of Railroads # 

Interest. Taxes. t 

Protection and Free Trade. | 

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Hand of Destiny, The. . .Ossip Schubin 

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Heir of Linne, The Robert Buchanan 

Her Martyrdom Bertha M. Clay 

Her Only Sin Bertha M. Clay 

Her Second Love Bertha M. Clay 

Her Sister's Betrothed. .Bertha M. Clay 

History of a Crime Victor Hugo 

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House of the Wolf, The. Stanley J. Weyman 
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Idle Thoughts of An Idle Fellow . J. K. Jerome 

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Ivanhoe Sir Walter Scott 

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John Halifax, Gentleman, Miss Mulock 

Kenilworth Sir Walter Scott 

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PracticalEconomics 

WHO GETS THE BENEFIT OF THE INCREASED PRODUCTIONS 
OF HUMAN LABOR DUE TO MODERN INVENTIONS? 



WHAT DETERMINES VALUE? 

Money. Panics. 

Labor and Capital. Trusts. 

Government Ownership of Railroads 

Interest. Taxes. 

Protection and Free Trade. 



BY ARTHUR LOXJIS S-A.R3DY. 
1900. 



Copyright, 1900, by Arthur Louis Sardy. 



CHICAGO I 
DONOHX^E BROS., 40r-420 X>EARBORX STREBTT, 



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INTRODUCTORY. 

The discussions of economic subjects in newspapers 
and legislative bodies, as well as in private conversa- 
tion, which we all read and hear, show that Economic 
Science has not kept pace with other sciences, and that 
the knowledge of it which does exist is not as widely 
diffused as information on most subjects, even those 
which are of far less importance. 

Nearly every one is willing to admit that something 
is wrong with modern civilization, and almost every 
one has some remedy to propose. Millions believe that 
the free coinage of silver would put us right, as though 
the kind of counters used in making exchanges were 
a matter of vital consequence, or the kind of chips used 
in playing poker would affect the result of the game, 
and ignoring the obvious fact that countries where 
silver is the only circulating medium are worse off than 
we are, just as are those where only gold, or only paper, 
is used. Others think free trade is all that is needed, 
but the masses in England are no better fed or clothed 
than here. Still others think we need more protection, 
but I have never heard that the working classes in Ger- 
many or France are more contented, happy or inde- 
pendent than with us. Others denounce trusts and 
combinations of capitalists as the chief cause of our 
troubles, while some think trades unions and combi- 



6 ECONOMICS. 

nations among workers detrimental to the general good, 
as though co-operation, mutual good-will and help 
were injurious, and fierce competition and opposition, 
every man trying to injure, instead of help, his neigh- 
bor were a good thing. 

Many of the changes proposed would aggravate the 
evils they were intended to remedy. Some of the more 
radical remedies might cure some of the ills we have, 
but would bring in others which would be found still 
more unbearable. It is easy to see that under state so- 
cialism production could be increased to such a point 
that while all would have to work, the hours of labor 
could be so shortened that all would enjoy ample leisure 
and none need ever want, but in order to accomplish 
this all but a few would have to sacrifice that personal 
liberty which is far dearer to every true American 
than any degree of ease or comfort. It is, perhaps, 
justifiable to experiment with all sorts of proposed 
cures while trying to ascertain what the disease is, but 
while this is being done efforts to discover the causes 
of the trouble should not be relaxed, and it is in the 
hope that I may be able to give some slight assistance 
in pointing out some of these causes that I have under- 
taken this little work, devoting comparatively little 
attention to the more congenial task of proposing rem- 
edies because I believe that progress and improvement 
must unavoidably be gradual and painfully slow in the 
future, as they have been in the past, and that, at best, 
a generation or two must elapse before any really high 
degree of civilization can be found anywhere; so the 
chief step which I take the liberty of advocating is 
the better education of our children, especially on 



ECONOMICS. 7 

economic subjects, with the view of teaching them to 
think deeply, intelligently, independently and continu- 
ously for themselves. For centuries, and until very 
recently, children, and their parents also, were sys- 
tematically educated not to think for themselves, but 
to accept without question what was taught them by 
"their betters," the severest means being resorted to 
for the purpose of repressing originality and inde- 
pendence of thought and action. A start has been 
made in the opposite direction, but it is only a begin- 
ning. 

As a matter of economy it would be cheaper to spend 
a given amount of money on education and the devel- 
opment of intellect than in the suppression of crime 
and the support of criminals, either free or in confine- 
ment. In all countries crime and ignorance go to- 
gether, the comparatively few crimes committed by 
educated persons being usually due to natural defi- 
ciency of intellect, which education could only remedy 
to a limited extent, or to some sudden impulse, and 
this latter is infinitely less likely to result in crime in 
persons of trained intellect than in the untaught. 
Every dollar spent on education could be made to save 
two or more in taxes, thefts, waste, the support of 
criminals and of those dependent upon crime directly 
or indirectly for a living. There is an immense num- 
ber of people, both male and female, who are not strong 
enough physically to earn a living by manual labor, 
who have not been taught any profession, and who 
have not leceived sufficient mental training to enable 
tlicm tc compete successfully for positions where the 
continued exercise of the mental faculties is required. 



8 ECONOMICS. 

Nrtwithstanding the stock jokes about the appetites 
and other indications of robust health in tramps, a 
majority of those whom I have met have been weak 
physically as well as mentally. There are hundreds of 
thousands of men and women in this country whose 
muscles have not been developed by sufficient work 
or exercise while young to enable them to do severe 
manual work, and who have never been educated to do 
anything useful, thoroughly and well. I believe it is 
chiefly from this class that the army of young women 
on the streets of all large cities at night is chiefly 
recruited, many of whom have, when thrown on their 
own resources, found all other means of obtaining a 
livelihood closed to them because of lack of physical 
strength to do hard work, and of education to do any- 
thing for which there is a remunerative demand. And 
the same is true of many young men, who have drifted 
into crime after unsuccessful efforts to secure, or hold, 
useful positions. Many of both sexes would go wrong 
under any conceivable conditions, but thorough prac- 
tical education would vastly reduce the number. 

Great good has sometimes come from violent up- 
heavals; an incalculable amount having been accom- 
plished by our Revolution; much resulted from the 
French Revolution, but it was mixed with so much evil 
that the strongest sincere advocates of the welfare of 
the people agree that it is incomparably better to ac- 
complish the same results by education than by force. 
Any amount of money is better spent for schools and 
competent teachers to educate the next generation than 
for arms and soldiers in the hope of keeping the 
masses down. When the majority of our people come 



ECONOMICS. 9 

to understand that the chief reason why they have to 
work so hard and receive so little in return is because 
each worker has to support so many who do not work 
at all, or who work unproductively ; that there are too 
few workers, not too many, remedies will be found. 
But before this can come about the great mass of the 
people will have to be educated to reason more clearly 
than many of their teachers can reason now. In our 
public schools it takes seven or eight years to go 
through a course of study which any intelligent child 
could, under favorable conditions, master in half that 
time. Some things are taught as facts which are 
simply matters of opinion, and others which are so 
obviously untrue as to excite the ridicule of an intelli- 
gent and observant child of eight or ten years of age. 
We can never cure the ills which afflict us until we 
know what those ills are, and the first step toward 
discovering them is to develop our intellects to such a 
point that we can reason clearly. This development 
must, unavoidably, be gradual, but with better oppor- 
tunities it might proceed much 'faster than at present. 
The waste of labor and capital attributable solely 
to ignorance is appalling. Millions of dollars are ex- 
pended annually in producing, handling, transporting, 
storing and selling materials of no intrinsic value, and 
used solely to adulterate, cheapen or give a false ap- 
pearance to goods which the consumer buys only 
because, in his ignorance, he thinks them "cheap." 
Millions are spent by people who are not ill for medi- 
cines which would not cure them if they were. Other 
millions are wasted in gambling by men and women 
who may have been told that gambling is "wicked," 



IP ECONOMICS. 

but who can learn only by experience that the per- 
centage against them renders ultimate loss a certainty. 

Independence, originality and practicability are, I 
believe, now encouraged in the higher institutions of 
learning to a greater extent than ever before, but this 
idea should be carried much further, and should be 
introduced into the public schools. 

Most of us have met men who cannot write a sen- 
tence correctly and who habitually use two negatives 
in conversation, but in whom the ability to think for 
themselves, and to put their ideas into practice, has 
been so thoroughly developed that they have been able 
to organize and manage industries employing hun- 
dreds of workers, and to cause the production or dis- 
tribution of wealth at a far more rapid rate than it 
could have been produced or transported without them. 
It looks a little as though these men were better edu- 
cated than many who have received what is termed a 
classical education, which has resulted in total inability 
to take care of themselves. A decided change for the 
better seems to be goif^ on in public opinion regard- 
ing what constitutes a good education in both men and 
women, and the sooner it comes to be generally under- 
stood that useful education consists more in develop- 
ing to the fullest extent the natural ability of the pupil 
to think and reason on practical subjects than in com- 
mitting to memory a multitude of things, many of 
which are not true, the better it will be for all. Most 
of us know entirely too much that is not so. 

The most learned and the totally untutored fre- 
quently share the same opinions, the greatest bar to 
progress, it appears to me, being the conservativeness 



ECONOMICS. II 

of those who have been educated, in the accepted 
sense of the term, but who allow newspapers to form 
most of their opinions for them because their minds 
have not been sufficiently trained to enable them to 
think for themselves without a degree of effort which 
is too painful to be long continued. It being usually 
more profitable to newspapers to advocate what is 
than what should be, erroneous opinions on economic 
matters held by a majority of their readers prevent 
any but the most gradual advance, and as the changes 
which must take place before all can enjoy even a 
moderate degree of comfort are very great, including 
important modifications of the present generally re- 
ceived ideas of Right and Wrong, Honor, Justice, 
Charity and Patriotism, it is idle to expect quick 
results. Time alone can bring about the requisite 
conditions, but their approach is hastened by the cor- 
rection of each popular error, and if I can succeed in 
pointing out even a few of these the time spent in 
writing this little book will not have been wasted. No 
attempt will be made to go deeply into the inexhaust- 
ible subject of Political Economy. We shall confine 
our attention chiefly to those matters on which I 
believe the prevailing popular opinion to be erroneous, 
in the hope of discovering the real causes of some of 
the ills which afflict us, and of demonstrating that 
some things which are popularly regarded as serious 
evils in reality do little or no harm, while some others 
which are generally thought harmless, or even bene- 
ficial, accomplish much evil. 

My aim will be to state positively only that which is 
so clear that any one who can read can understand it, 



12 ECONOMICS. 

and which is so evidently true that it cannot be con- 
troverted. 

Figures cannot lie, but it is so very easy to lie with 
figures, and this is so often done, that I place little 
reliance on statistics, and none will be used in the book. 

WHO GETS THE BENEFIT OF THE IN- 
CREASED PRODUCTIVENESS OF HUMAN 
LABOR DUE TO MODERN INVENTIONS? 

John Stuart Mill wrote "Hitherto it is questionable 
whether all the mechanical inventions yet made have 
lightened the day's toil of any human being," which 
has been often approvingly quoted, but a greater 
amount of error has seldom been condensed into so few 
words. Not only has the labor of millions been light- 
ened, but other millions have been enabled to live in 
luxury without ever engaging in any useful occupation 
or doing anything which could correctly be denomi- 
nated as labor; and in every civilized country there 
are today hundreds of thousands who "toil not, neither 
do they spin," and who, but for modern inventions, 
would have been earning their bread by the sweat of 
their brows. Mechanical inventions have not only 
lightened the labor of the producing class, but they 
have enabled every worker to carry far more non- 
producers on his back than he could possibly have done 
without their aid. By continually increasing the effec- 
tiveness of his work they have enabled him to accept 
in payment for that work a constantly decreasing pro- 
portion of its results without lowering his own stand- 
ard of living. Seeing that those who work with mod- 
ern machinery are comparatively little better off than 



ECONOMICS. 13 

their ancestors were without these inventions, those 
who do not look beneath the surface of things are at 
a loss to see where the results of the increased effi- 
ciency of labor finally land ; but a little reflection on the 
subject enables one to see that if modern inventions 
had not made it possible for real workers to live on 
a comparatively small proportion of what they produce 
they could never have supported the vast armies and 
navies of Europe, paid enormous and constantly 
increasing rent for land, paid the interest on almost 
incalculable national debts, and created millionaires by 
the thousand. 

By far the greatest part of the surplus of wealth 
created, over and above the subsistence of those who 
produce it, goes to the owners of land. Fifty years 
ago a tenant farmer was a rarity in this country, but 
with the increase in population, the consequent aug- 
mented supply of labor and the proportionately reduced 
amount of land, a continually increasing proportion 
of the produce of the soil went to the farmer as land- 
lord and a continually diminishing proportion went to 
him as farmer. The shrewd American farmer has not 
been slow to perceive this state of affairs, and as it has 
become apparent to him that in tilling his own land 
he is merely earning the wages of an intelligent laborer 
and that all he receives over and above that could be 
realized by renting his farm, he has, by the thousand, 
rented it and moved to town, the renter thenceforth 
supporting the landlord and the landlord's family, as 
well as himself and his own family. This he never 
could have done, to anything like the extent he is doing 
it, without the help of improved agricultural machinery, 



14 ECONOMICS. 

every dollar saved by the use of such machinery going 
intact to the landlord, the tenant rarely being benefited 
to the extent of a single cent by its use, although he, 
of course, must own and use it industriously, or a 
competitor who does will be able to offer a higher rent 
than he can pay, and thus supplant him. 

In every little town throughout the west there are 
ex-farmers and their families living in comfort on the 
rent paid them by the men now tilling the land which 
they tilled, and partially exhausted, without paying any 
rent. In every city the finest residences and the hand- 
somest turnouts are owned by the people who, or whose 
parents, happened to own the land. I say happened 
because the land was there and some one had to own 
it, and it was about as likely to be one as another. 
Thousands of able-bodied men and women in every 
large city are living today on the results of other peo- 
ple's labor because they happened to own a piece of 
land which has risen in value. Without the help of 
modern machinery it would be impossible for* the 
productive classes to support one-tenth the number of 
landlords in the way they are now being supported. 

When improvements in architectural science make 
office buildings sixteen to twenty stories high prac- 
ticable neither the general public, the tenants nor the 
owner of the building, as such, is benefited. The 
increased income goes to the owner of the land on 
which the building stands. This is so well understood 
that it is becoming more and more the custom with 
owners of land in the busiest portions of large cities 
to refuse to sell it at any price, but to rent it for long 
terms, thus securing a large and perpetual income on 



ECONOMICS. 15 

capital which does not represent work ever done by 
any one. To enumerate the various ways in which 
the owners of land appropriate the results of inventions 
and improvements would increase the size of this little 
work beyond the limits set for it, and the whole subject 
has been so thoroughly explained by Henry George 
and other writers of ability and attainments so far 
beyond my own that the reader is referred to their 
works for a full and clear exposition of the subject. 

To superficial observers the true state of the case is 
somewhat obscured by the fact that capital invested 
in land does not, apparently, yield a higher rate of 
income than other investments, but, as shown in the 
chapter on value, it is the value which makes the cost, 
and not the cost the value, so the value of land, as that 
of any other investment, is raised to the point where 
the rent amounts to the usual rate of interest on cap- 
ital ; but there are millions of acres of farming land 
throughout the west rented at three or four dollars an 
acre per annum which was purchased for twenty-five 
cents to two dollars an acre less than fifty years ago, 
so that it pays from one hundred to one thousand per 
cent per annum on the original cost. And it would 
be an interesting problem for a mathematician to calcu- 
late what percentage an acre, say on Wall street. New 
York, has paid on its original cost since the first time 
it was sold. 

Next to private ownership of land probably the most 
successful device yet discovered for enabling one class 
to ride on the backs of others, and even for the citizens 
of one country to live largely on those of others, is the 
government bond (mortgages on land are ignored, 



1 6 ECONOMICS. 

because I regard the mortgagee as the real owner and 
the mortgagor as merely a tenant). The interest paid 
annually on the national, state and municipal debts of 
the world computed in dollars and expressed in figures 
would represent a sum far beyond the capacity of any 
human mind to form any definite conception of. If it 
were not for the vastly increased productiveness of 
labor due to mechanical inventions it would be far 
beyond the power of the productive classes to produce 
enough, in addition to their own support, to pay the 
interest on these bonds. Bondholders probably come 
next to landowners as the receivers of the results of 
improved methods. When one gives serious thought 
to the matter a hundred dollars appears like a ridicu- 
lously small sum to pay for a bond insuring the pay- 
ment by the public of three dollars annually to one's- 
self and one's heirs forever. Surely the labor of land- 
lords and bondholders has been lightened by mechan- 
ical inventions. Hundreds of thousands of both 
classes who now live in luxury on their rents or their 
interest would, but for these inventions, be toiling for 
their daily bread, because without these the working 
classes would be unable to support them. 

Fifty years ago the owner of property to the value 
of a hundred thousand dollars was regarded a rich 
man. Now there are thousands worth from one to 
fifty millions each. The accumulation of so much 
wealth within so short a time has been made possible 
by the use of modern inventions. Railroads have 
doubtless created more great fortunes than anything 
else except the increase in the value of land, the various 
methods by which any one in control of a railroad can 



ECONOMICS. 17 

enrich himself being so simple and obvious that they 
have been very generally availed of. 

The armies of the world are fed and clothed by the 
producing classes. Whether the money paid for their 
support be raised by direct taxation or by selling 
bonds, every article of clothing worn by them and 
every morsel of food which they consume must be 
produced by working men and women, and is con- 
sumed by able-bodied men who do not work. The 
increased productiveness of labor due to modern inven- 
tions, therefore, goes largely to the support of soldiers 
in idleness and for building and maintaining warships 
which if unemployed are useless, and if used are often 
infinitely worse than useless. When the money to pay 
for these things is raised by direct taxation it is bad 
enough, but when it is raised by selling bonds it is still 
worse, for in the latter case the interest on the bonds 
must, thereafter, be added to the cost of supporting 
the army and the navy, making an army of bond- 
holders as well as an army of soldiers to be supported. 
As fast as the march of improvement in machinery and 
labor-saving appliances makes it possible for the pro- 
ductive portion of the population to support more non- 
producers new issues of bonds are floated and rents 
are raised, thus always keeping a load on the backs of 
the people as heavy as they can carry with the aid of 
the latest inventions. 

The sums now paid annually for rent, interest on 
state, county and municipal bonds, and for the main- 
tenance of armies and navies, as compared with the 
amounts expended for similar items a century ago 
will, I think, pretty nearly account for what becomes of 



l8 ECONOMICS. 

the difference in the productiveness of labor then and 
now. The fortunes made by the rise in the value of 
land and in managing railroads, and by monopolizing a 
few natural opportunities will account for the rest. 

VALUE. 

The best definition of the word value which I re- 
member to have seen is "a relative term meaning the 
amount of other things which a given thing will 
exchange for." This is merely another form of the 
expression so often used by business men that "a thing 
is worth just what it will bring," price being value 
expressed in money. Economists have usually as- 
sumed some relation between utility and value, but 
there is no real connection between them. Every one 
can readily think of many useful things which have no 
value and of many valuable things which have little 
or no use. The value of a thing at a given time and 
place is just what it will exchange for at that time 
and place ; its value tomorrow may be double, or only 
half, what it is today; or, in some other location, its 
value would, perhaps, be many times as great as 
where it is. All talk of a thing selling for more or 
less than its value is meaningless; it is worth, then 
and there, just what it brings. 

Having stated what is meant by value, I will try to 
show that the amount of other things which a given 
thing will exchange for is determined solely by the 
amount of the available supply as compared with the 
urgency of the demand existing for it at the time and 
place where it is located. No particular supply of any 
commodity is necessary, and there is practically no 



ECONOMICS. 19 

limit to the demand for it if the price be low enough. 
A small supply at a high price completely satisfies the 
demand which exists for it at that price, while a supply 
many times as large would be all used up at a lower 
price. The available quantity determines the price 
and the price determines the consumption. The price, 
when the supply is large, compared with the demand, 
always being reduced, step by step, till consumption 
overtakes production. On the other hand, if the sup- 
ply is small prices are raised gradually to the point 
where the demand is as small as the supply. Thus a 
small crop lasts till the next harvest, or a large one is 
all consumed, the price regulating consumption to a 
nicety ; and every hat, coat and shoe manufactured is, 
sooner or later, used up, those not meeting with ready 
sale being finally reduced in price till some one takes 
them. All attempts by the aid of corners, combina- 
tions, trusts, protective tariflFs and other devices to 
market a large product at a high price always have 
resulted, and always must result, in failure. As the 
price is raised the consumption is diminished, and in 
order to effect the consumption of the entire stock the 
price must, sooner or later, be reduced not only to the 
natural value of the commodity, but enough below it 
to cause an increased demand sufficient to offset the 
economy or substitution practiced by the consumers 
while the value was artificially maintained above its 
natural level, so that if the commodity cornered be a 
crop or a by-product the entire crop or product will 
sell for about the same amount of money, or exchange 
for the same amount of other things, as though no 
comer had been attempted. But if the article cornered 



20 ECONOMICS. 

be one the amount of which is not limited by nature 
the temporarily increased value will cause an aug- 
mented supply to be produced which must eventually 
be disposed of, and the average price for a given 
period will be lower than if the corner had not been 
undertaken. No man with a thorough knowledge of 
practical economics ever undertook to run a comer in 
a commodity with his own money. 

The popular idea that cost of production determines 
value is plausible but untenable. John Stuart Mill 
wrote that there was nothing more to be learned about 
value and then proceeded to say that value is usually 
determined by cost of production; but a little study 
on the subject will, I think, demonstrate that the 
reverse is often true, value frequently determining 
cost of production. It is not that goods always sell 
close to the cost of production, but that the cost of 
production is raised to a point approximating the 
value of the product. If the crops from a piece of 
land sell for more than the cost of the labor required 
to produce them the excess is added to the rent or 
value of the land and ever after is a part of the cost 
of producing crops upon it. The only reason why 
it costs more to raise wheat in England than in Dakota 
is because wheat is worth more in England and the 
cost of production is increased to correspond with the 
value of the product by charging a high rent for the 
land. When a mine yields abundantly of valuable ore 
the mine is capitalized at a high figure and the interest 
on this capitalization becomes a part of the cost of the 
ore, so that its cost and its value thereafter closely 
correspond. If a racehorse distinguishes itself on the 



ECONOMICS. 21 

turf the value of all its relatives is enhanced to a point 
which brings the cost of producing another of the 
same blood fully up to, or above, its value. It costs 
no more to raise a pound of beef or mutton from the 
hindquarter than from the forequarter, or a ham than 
a shoulder, but the meat from the hindquarter is 
always more valuable than that from the fore. 

Competition among sellers has far less to do with 
fixing values than is generally supposed. Even though 
the entire supply of an article be in the hands of a 
single individual, as was very nearly the case a couple 
of years ago with wheat in this country, no higher 
price can be obtained for the entire amount than if 
the usual competition existed. The public can only 
take a certain quantity at a certain price; nothing 
short of a reduction in price will induce it to take 
more. A person's income being appropriated in a 
certain way, an increased expenditure for one item 
would necessitate a reduction on one or all of the 
others. Assuming the most extreme case it is possible 
to conceive — namely, that a single individual owned 
and controlled absolutely all the means of production, 
every farm and every factory on earth, it would be 
impossible for him to exact any higher prices for his 
products than they now bring, because the most he 
could require would be the entire earnings of all the 
people, and that is precisely what they pay now for 
lodging, food, drink, clothing and amusement. A 
general rise in the value of everything being, obviously, 
an impossibility, when a rise in one article takes place 
a majority of the consumers of it prefer to curtail the 
use of it, substituting something cheaper, or do with- 



22 ECONOMICS. 

out altogether, rather than appropriate a larger part 
of their incomes to that article and reduce the appro- 
priation for others. The law of Supply and Demand 
is the sole regulator of values, and while its action 
is often harsh, and ignorance of its inexorable nature 
brings frequent loss, and even financial ruin, to indi- 
viduals, and sometimes to whole communities, it is 
doubtful whether the human intellect in its present 
state of development is capable of devising any plan 
which would so effectually adjust production and con- 
sumption to each other, thereby preventing famine 
and many other serious disasters. Without the re- 
straining influence of a high price a small crop of 
wheat or cotton would not last till the next harvest. 

Many a man of more than average intelligence and 
energy, and possessed of abundant wealth, but un- 
aware of the absolute sway of the law of Supply and 
Demand, has lost every dollar of his own, and all the 
capital he could beg, borrow (and in some instances 
steal) in well-planned and executed, but futile, efforts 
to control values. Such a man can put up prices as 
long as he has sufficient money or credit to take all 
offerings at the high prices which he himself has fixed, 
but while he is doing this consumers of the commodity 
are using less of it than usual, substitutes are being 
used to a great extent, and supplies come in from 
unexpected sources, so that when he gets ready to, or 
must, unload the market goes lower than it would 
have gone if the artificially high price had not caused 
a curtailment of consumption. 

When the entire supply of a commodity comes from 
a single source, or when all the sources are controlled 



ECONOMICS. 33 

by one individual, trust or syndicate, it is possible for 
those in control to decide whether they will limit pro- 
duction to what the market will take at a high price, or 
whether they will sell a larger quantity at a more 
moderate price. Sometimes one ct)urse is adopted, 
and sometimes the other. When the policy of doing a 
comparatively small business at an exorbitant price 
is adopted the monopoly is directly and positively det- 
rimental to the public welfare, but after trying both 
plans it is usually found to be more profitable to 
produce on a large scale and sell at a comparatively 
reasonable profit. 

It should be clearly understood that it is neither 
supply nor demand alone which determines value, but 
the ratio of one to the other, and in many things the 
whole world must be reckoned with. For instance, 
wheat may sell higher in a year when we have a larger 
crop in this country than usual, providing the crop in 
other countries is small, than it sold in some other year 
when we had a small crop and other countries had 
large ones. 

An increased demand for an article does not, by any 
means, always result in an advanced price ; the reverse 
is frequently the case, because production increases 
faster than consumption does. Bicycles are a good 
illustration of this. Their use has increased enor- 
mously in the last few years, and simultaneously their 
price has fallen considerably. It takes a wider fluc- 
tuation in the wholesale price of an article, the profit 
on which, between the wholesaler and the retailer, is 
large, to affect its consumption than it does in one 
which is sold on a close margin, narrow fluctuations 



24 ECONOMICS. 

being absorbed by the retailer when he has sufficient 
margin of profit to admit of it. 

The value of money is determined by supply and 
demand, the same as all other values are. In pros- 
perous times owners of money are ready and willing 
to spend it; in other words, the demand for goods 
exceeds that for money, and prices rise, that is to say, 
money declines in value. On the other hand, in hard 
times the majority of people want money rather than 
goods, and prices fall, or money advances in value. 
It is not high prices and cheap money which make 
good times, and low prices and dear money which 
make hard times, but good times make money cheap, 
and hard times make it more valuable by increasing 
the demand for it while the available supply is not 
increased. 

MONEY. 

Money was invented for the purpose of avoiding the 
inconvenience of the direct exchange of commodities. 
This is its only use, and that which accomplishes this 
best and easiest is the best money. The amount of 
money in existence is a matter of small consequence. 
It is a mistake to suppose there is not sufficient money 
in any country to supply the needs of its business. 
The value of money, like that of everything else, being 
determined by its amount as compared with the de- 
mand existing for it, it amounts to the same thing 
whether the money in use is large in volume and small 
in value, or of high value and small volume. Prices 
of everything, labor included, speedily adjust them- 
selves to either condition, and paper substitutes for 
real money are, in all civilized countries, used to such 



ECONOMICS. 25 

an extent that even in the matter of convenience in 
handling it makes but Httle difference whether a sub- 
stance of high or one of comparatively low value be 
adopted as the standard of value. The one important 
consideration is stability. The substance the least 
liable to fluctuations in value is the best adapted for 
use as money. Injustice is done to creditors when 
the value of money depreciates or when a substitute 
for real money is made a legal tender and enough of 
it issued to cause its value to fall below par. This 
has often been done in all parts of the world, notably 
in this country when debts contracted prior to the 
revolution where paid in continental currency, none of 
which was ever redeemed ; and when, during the civil 
war, debts were paid in depreciated greenbacks. On 
the other hand injustice is done the debtor class when 
the value of money, or its legal tender substitutes, 
appreciates, as was the case with the greenbacks and 
national bank notes after the civil war, and as was 
doubtless the case with gold for a number of years 
recently. But the ingenuity of man has not proved 
equal to the task of finding a measure of value which 
does not itself fluctuate in value, and which is not, to 
that extent, an imperfect measure, just as a yardstick 
subject to expansion and contraction would be. The 
question whether gold or silver fluctuates the least, and 
is consequently the better standard, is discussed by 
newspapers and politicians to an extent far beyond its 
real importance. It matters very little to the com- 
munity in general whether gold, silver or a mixture 
of the two be employed as the unit of value, but it 
should be understood that it is impossible to maintain 



26 ECONOMICS. 

a parity between any two standards, and that no such 
parity has ever been or ever will be maintained any- 
where for a single day, even if all the governments on 
earth should pass laws establishing it. Such laws 
would have no effect; the relative values of the two 
metals would change as often as those of corn and 
wheat do. 

I am somewhat doubtful whether any one really 
wants a double standard, but if such were wanted it 
could be secured in either of two very simple ways — 
the two metals to be employed could be melted to- 
gether in the desired proportions and all coins made of 
the composite metal, or else different and distinct 
names could be given to the coins made of the different 
metals, no ratio being established by law between the 
two. All contracts would, in the latter event, neces- 
sarily state the kind of money in which payment would 
be made, and no injustice could be done. If either 
of these plans had been adopted in the beginning, and 
governments had not attempted the impossible in try- 
ing to fix values by law, much time and vexation would 
have been saved. 

It is customary for economists to teach that there 
are two kinds of real money, gold and silver, and in 
reading the report of a speech made in Richmond some 
time ago by our secretary of the treasury, I noticed he 
made the same statement, which, however, I think 
erroneous. There is never more than one kind of real 
money in existence at any one time in any country. 
When the market value of the gold in a gold dollar 
is greater than that of the silver in a silver dollar gold 
disappears from circulation and the two dollars can 



ECONOMICS. TTJ 

only be maintained on an apparent parity providing 
the government will redeem the silver dollar, directly 
or indirectly, with a gold one whenever asked to do so. 
As the same process keeps paper notes at par, the 
silver dollar in this case becomes a mere promise to 
pay, just the same as a paper dollar is; the promise 
could as well have been printed on paper as on silver, 
and the capital sunk in the silver is, consequently, a 
loss to the community except that the holder of a 
silver dollar has security to the extent of the market 
value of the metal which it contains; but this fact 
never prevents its presentation for redemption when 
gold is wanted, and paper would answer every pur- 
pose better, even to the difficulty of counterfeiting, 
because it is possible to make dollars of real silver, in 
all respects equal to those stamped by the government, 
at a profit to the maker of more than fifty cents each, 
and it does not appear unreasonable to suppose that 
some of those in circulation have been so made. 

At times, as for some years after the discovery of 
gold in California and Australia, the market value of 
the gold in a gold dollar has fallen below that of the 
silver in a silver dollar, and at such times silver has 
disappeared from circulation, and the relative posi- 
tions of the two metals have been the reverse of what 
they are now except that the difference in value be- 
tween the two kinds of dollars has not been as great. 

In the present stage of enlightenment a metallic 
standard of value is doubtless a necessity, and gold, 
all things considered, is almost unquestionably the 
metal best adapted for the purpose, but the greater 
the extent to which paper substitutes are used in a 



28 ECONOMICS. 

given country the more capital is released for other 
and more productive uses. The substitution of a 
million dollars in paper for a million in gold or silver, 
and the sending of the latter abroad in payment of a 
debt, or in exchange for commodities, adds a^ million 
dollars to the productive capital of the country, pro- 
viding the issue of paper be not carried to such a point 
that it depreciates below its face value, as is usually 
the case in countries where paper currency is issued 
by the government, the temptation to issue excessive 
amounts being usually irresistible, but the fact that 
the authority has often been abused does not appear 
to be a valid reason for delegating it to individuals 
or to banks. The saving effected by the substitution 
of paper notes for metallic currency rightfully belongs 
to all the people, and the arguments used to justify its 
donation to banks in nearly all countries are fallacious 
and refutable. 

Much has been published in the newspapers about 
the folly of the government going into the banking 
business, but it appears to me that, while there is not 
the slightest prospect of the government assuming any 
of the functions of a bank, the banks are fast getting 
into the government business, a branch of which is 
issuing currency, while the legitimate business of a 
bank is the receiving of deposits, the loaning of 
money or credit, the collection of business paper and 
dealing in foreign and domestic exchange. Even if 
confined within these limits, there is no more profitable 
business than banking. You deposit your money with 
a banker, in other words you loan it to him, you ask 
for no security, and you give him full permission to 



ECONOMICS, 29 

use the money as he Hkes, make all he can with it, and 
give you, in most cases, nothing in return except your 
money back when you want it. When you wish to 
use some of the money in his possession the case is 
different ; you give him ample security, pay him inter- 
est, and leave a considerable part of the money which 
you have borrowed from him in his charge, with 
liberty to reloan seventy-five per cent of it to some 
one else on interest. This looks, to an outsider, like 
a pretty good business, but the enterprising banker is 
by no means satisfied with it; like David Copperfield 
he wants more. He wants, besides the privilege of 
borrowing money without security or interest and 
loaning it on both, the additional privilege of com- 
pelling you to accept his note without interest and 
payable on Doomsday as money when he discounts 
your sixty or ninety day note with ample security at 
six per cent interest, and expects you to leave about 
half the proceeds with him. In explaining the advan- 
tages of this plan our secretary of the treasury did 
not state the case in this blunt way; with his greater 
command of language he expressed it far more neatly, 
putting it something like this : A farmer in the remote 
west or south is known only within a small radius ; he 
is solvent, and in every way worthy of credit, but no 
one outside of his immediate neighborhood knows this, 
and he has no collateral which a city bank would 
accept ; he could, or thinks he could, profitably employ 
more capital on his farm ; the bank in his town would 
take great pleasure in accommodating so worthy, in- 
dustrious and enterprising a man, but it really hasn't 
the money. The bank has, of course, a wider circle 



30 ECONOMICS. 

of acquaintance than the farmer has, and its credit is 
estabHshed over a greater extent of territory than his 
is, so the proper thing for it to do under the circum- 
stances is to loan the farmer its credit, which is so 
much better established than his, but here an obstacle 
comes into view, the pig-headed farmer refuses to pay 
the discount on the bank's note as well as that on his 
own, and if the bank itself should pay it the bank 
would make nothing on the transaction except what 
it is rightly entitled to, which is the difference in in- 
terest between the rate it can get from the farmer and 
the rate it would have to pay on the farmer's note with 
its indorsement. So small a profit not being to his 
taste, the banker looks around for a way out of the 
dilemma, and by a sudden inspiration it occurs to him 
that it would be all right if our government would 
just guarantee the payment of his notes and make them 
legal tender, then the farmer and everyone else would 
have to accept them whether they liked it or not. In 
view of the disinterested patriotism and philanthropic 
spirit by which the banks have always been actuated in 
their dealings with the people, the latter cannot, surely, 
refuse so reasonable a request. 

There are three little points, however, which Mr. 
Gage did not apparently think worth explaining. One 
is that in this transaction the bank is loaning and re- 
ceiving interest on the government credit, not its own ; 
another is that the bank's note, issued by government 
authority and on the people's credit, displaces a gov- 
ernment note for a like amount, and an interest-bearing 
bond has to be issued in its place, so that the banks 
get interest on all the government paper which can be 



ECONOMICS. 31 

floated without interest, while the people pay interest 
whenever they use the national credit for their own 
benefit; and the third is that so large a borrower as 
our government entering the loan market greatly helps 
to sustain the rate of interest on loanable capital. 

No new law was requisite to enable a bank to loan 
its own credit. It can do this in ways well known 
to all bankers. 

In political speeches and newspaper discussions all 
sorts of arguments have been used to convince wage- 
workers that their prosperity or adversity depends upon 
the kind of money used, newspaper articles being fre- 
quently illustrated with absurd pictures showing a 
workingman receiving his pay in silver on a gold 
basis and paying it out for family supplies on a silver 
basis, and the like. Gold advocates tell these people 
they would receive, under free coinage of silver, the 
same number of silver dollars for a week's work as 
they now receive on a gold basis, while the prices of 
all they consume would be doubled. Champions of 
silver tell them equally absurd tales. The truth of the 
matter is that so long as every one is paid in the same 
kind of money as he or she spends, and it is spent 
practically as soon as received, which is usually done, 
it makes no difference what that money is. The few 
dollars which a person has on hand in actual cash, not 
the property owned or the debts due him, represents 
the difference between what he has received and what 
he has spent, or invested, during his whole lifetime, 
and with most of us this is so trifling a sum that a 
slight increase or diminution in its value would make 
no difference to us. As already stated, the only people 



32 ECONOMICS. 

affected by a change in the value of money are debtors 
and creditors, and they have alternately had the better 
Qi each other in the ups and downs of the value of 
the currency in use. 

PANICS. 

During the past hundred and fifty years there have 
occurred eighteen commercial crises of considerable 
severity, namely: in 1758, 1764, 1772, 1776, 1778, 
1793, 1801, 1810, 1816-17, 1826, 1831, 1837, 1847, 
1857, 1866, 1873, 1882, 1893. It is interesting to note 
how nearly the intervals between those in the past 
and those in the present century correspond. Each has 
been followed by a period of depression and dull busi- 
ness, and between the regular panics have occurred 
constant minor alternations of activity and depression. 
Those who have attempted to discover the causes of 
commercial panics have variously attributed them to 
good crops and consequent low prices, to poor crops 
and consequent high prices, to overproduction, to the 
building of too many railroads, to overspeculation, to 
the investment of too much capital in productive ma- 
chinery, to too little money or too' much in circula- 
tion, but have with singular unanimity avoided all 
mention of what appears to me the simplest and most 
obvious explanation, which is the too unequal division 
of the products of industry. To simplify matters let 
us assume a community consisting of only one land 
owner owning all the land, one capitalist owning all 
the buildings, machinery and implements of produc- 
tion, and the remainder of the community consisting 
of farmers, laborers, operatives and mechanics and 



ECONOMICS. 33 

their families. If all the workmen worked steadily 
and received sufficient pay for their work to enable 
them to buy all they produced except what was needed 
for the use of the land-owner, the capitalist and their 
families, is it not obvious that all could live in com- 
fort and even luxury; that no one need ever be out 
of employment, and that production could go on un- 
interruptedly forever? But if the land-owner took 
from the workingmen, for rent, so large a proportion 
of their earnings that they only had enough money 
left to buy from the capitalist three-quarters of what 
they produced, is it not equally obvious that produc- 
tion must periodically stop till the accumulated stock 
be consumed? And is it not equally apparent that 
while the stoppage lasts those who, through improvi- 
dence, misfortune or owing to the number of those 
dependent upon them have not laid by anything, must 
either starve, steal, or exist upon charity? And that 
the prices of the accumulated commodities must be 
reduced to a figure which will enable the workingmen 
to buy them? And after having disposed of his 
accumulated stock at a loss (the difference between 
what it cost and what it brought having gone to the 
land-owner in rent), the capitalist will naturally pro- 
ceed to replace it slowly and cautiously, and the panic 
will be followed by the inevitable period of dull trade 
and hard times. Is it not clear that the panic could 
have been avoided and all could have been better off, 
the capitalist and the land-owner included, if the pay 
of the workers had been sufficient to enable them and 
their families to consume all they produced, with the 
exception of what was needed by the capitalist and the 



34 ECONOMICS. 

land-owner? The latter would, in any event, have 
been a useless burden on the backs of the others, and 
his elimination would have amounted to the same thing 
as a vast increase in the wages of the workers and in 
the profits of the capitalist. To attribute hard times 
to overproduction is equivalent to saying that poverty 
is caused by a superabundance of wealth, and is too 
absurd for serious consideration. 

When a panic has occurred soon after a period of 
exceptional activity in railroad building, the panic has 
been attributed to this cause, but the possession of even 
useless wealth cannot cause poverty. If so much labor 
and capital were consumed in building railroads or fac- 
tories as not to leave enough available for the produc- 
tion of food, clothing and other necessities, then it 
might be truthfully said that the overbuilding of rail- 
roads and factories had caused hard times, but such 
is never the case. There is always a glut of goods 
of all kinds in panicky times, the harder the times the 
greater the glut. And even in times of so-called 
famine, there is always an abundance of food for all 
who have money to pay for it. In countries where 
the people receive for their labor in good times barely 
enough to support life, a slight shortage in the crops, 
sufficient to raise prices somewhat, causes the starva- 
tion of thousands, but there is always plenty of food 
obtainable by those who have the money to pay for 
it at the increased price. 

Speculation is usually regarded as a cause of hard 
times, but in nearly all forms of speculation some 
one must gain what others lose, and the community 
could only be impoverished by speculation if a suffi- 



ECONOMICS. 35 

cient number of workers withdrew from productive 
occupation and engaged in speculation to cause a 
serious diminution in the production of wealth, which 
is never the case, the ranks of speculators not being 
recruited from those of the workers to a sufficient 
extent to materially affect the volume of the social 
product. But while speculation does not reduce the 
real wealth of the country, it does play a part in pre- 
cipitating panics. During every period of exceptional 
prosperity prices of stocks, bonds and real estate, as 
well as those of most commodities, rise. Thousands 
of holders of these forms of property, believing them- 
selves to be rich, adopt a new and more expensive 
standard of living, production being thereby stimu- 
lated, but wealth created by merely marking up the 
value of what was already in existence is a very differ- 
ent thing from that created by well-directed labor, be- 
cause it does not represent any real increase in the 
wealth of the country, and because it may, at any 
moment, have to be marked down again. When this 
marking down occurs many people who thought them- 
selves rich find they are not, and they immediately cur- 
tail consumption, thereby throwing working people 
out of employment ; these in turn must also consume 
less, throwing still more out of work, and we have 
the phenomenon of dull times. 

LABOR AND CAPITAL. 
There is no natural conflict between labor and capi- 
tal except as to the division of the product of both. 
Their interests are identical except in this one respect, 
and even in this they are not as widely divergent as 



36 ECONOMICS. 

is often thought. Obviously it is not for the best in- 
terest of labor, as a whole, to consume so large a share 
of what is produced that the amount of capital in 
existence would be diminished, and on the other hand 
it is as clearly not to the interest of capitalists, as a 
whole, that laborers should be so poorly paid that they 
cannot buy, and consume, all that is produced for their 
use. 

Capital cannot, anywhere, be productively employed 
except in connection with labor, and in what are called 
civilized communities, labor, as a general thing, is of 
little use except in connection with capital. The two 
must be employed together, and the greater the amount 
of capital the more productive the labor employed in 
connection with it will be. 

Theoretically, the result of all labor is divided be- 
tween three classes of persons, namely : workers, capi- 
talists and land-owners. A single individual may fill 
all three or any two of those positions, but the profits 
which he derives from his occupation may be separated 
into three parts: wages for his work, interest on his 
capital, and rent for his land. In one respect the 
interests of all three classes are identical; it is to 
the interest of all that production should go on unin- 
terruptedly, in order that the amount to be divided 
may be as large as possible. Clearly, the greater the 
amount of wealth produced the more each partner in 
the division can get. But, as explained in the chapter 
on panics, production under modern conditions can 
proceed uninterruptedly only when the total production 
is divided with a reasonable degree of equity. It is, 
therefore, to the interest of all that a fair division 



ECONOMICS. 37 

should be made, so that the working class, which is 
always by far the largest, can consume all that is pro- 
duced for its consumption. To this extent the interests 
of all classes are identical just as it is to the interest 
of every individual in a community that the whole com- 
munity should be prosperous, and as it is to the inter- 
est of every nation that all other nations should thrive. 
The consuming power of an individual, or that of a 
nation, is in proportion to its prosperity, and one's best 
customer is he who consumes the most of what one 
produces. 

A reasonable degree of thrift is commendable, and 
it is to the interest of an individual to get all he can 
and save all he gets, as long as too many others do 
not attempt to do the same, but nothing would be 
more detrimental to the community in general, and to 
the working classes in particular, than for every one 
to become suddenly economical and thrifty. This is 
precisely what happens after a financial panic, and is 
largely what produces the long periods of dull times 
which always follow them. The faster wealth is 
consumed the more demand there is for labor and 
capital, and the better both are remunerated. History 
shows that even where enormous amounts of wealth 
have been destroyed with the greatest rapidity by con- 
flagrations, war, earthquakes and similar disasters, 
it has been replaced so fast that in a few years the 
recovery has been complete, and everyone as well 
off as though no calamity had occurred. 

The interests of laborers and capitalists are identical 
in another respect; it is to the interest of both that 
the third partner (the land-owner) should receive the 



38 ECONOMICS, 

smallest possible share of the total product. But when 
it comes to a division between themselves it is, as 
already shown, to the interest of both that an equitable 
division should be made; otherwise consumption will 
not keep pace with production, we will have the absurd 
phenomenon of "overproduction," stocks will accumu- 
late, prices will fall and both labor and capital will to 
a great extent be unemployed. 

While it is best for employers as a class that their 
employes should be well paid, it is of vital importance 
to each individual employer to get his work done as 
cheaply as his competitors get theirs. It makes but 
little difference how high the wages paid as long as 
all other similar establishments have to pay the same, 
but if one competitor succeeds in grinding down his 
employes to a lower scale of wages all must do the 
same, and it is here that labor organizations are of 
incalculable benefit, not only to their own members, but 
to the whole community, by enforcing a uniform, and 
reasonably high, rate of pay from all employers for a 
given amount of work. A wise employer of produc- 
tive labor does not worry when he has to pay high 
wages if he knows that his competitors are paying the 
same, for well paid laborers not only produce more, 
but they and their families also consume far more 
than those who are ill paid, and as all production is 
intended for consumption, the laborer and the capi- 
talist are happiest when both production and consump- 
tion are at their maximum. While this is true under 
present conditions, it would not be so in an ideal state 
of civilization, where- production would go on only 
at such a rate that while everyone's wants were well 



ECONOMICS. 39 

provided for all would have abundant leisure, and no 
one would be overworked. 

That most things are used up about as fast as pro- 
duced, is shown by the small amount of wealth in 
existence, considering the length of time it has taken 
to accumulate it. There are probably millions of peo- 
ple in this country who do not possess property to 
the value of a cent for each day they have lived. It 
has been estimated that the total wealth of the world 
could, with the aid of modern machinery, be produced 
in three or four years. If the total wealth accumulated 
in countless thousands of years amounts only to the 
total product of three or four, the addition each year 
must have been exceedingly slight. Statistics in- 
tended to show the wealth of a country or of the 
world are, like most other statistics, misleading. The 
same wealth is counted over and over again, and much 
purely fictitious wealth is included. Thus, a farm and 
the mortgage on it, or a railroad, its stock and its 
bonds, paper money, promissory notes, stocks, insur- 
ance policies, book accounts and the like are all esti- 
mated as wealth, and yet the total wealth of the world 
would not be diminished if they were all destroyed, 
because the loss on each item, to some one, would 
be balanced by a corresponding gain on the part of 
someone else. To illustrate this matter of wealth 
existing purely on paper, when a railroad is built, 
stock may be issued upon it, then preferred stock, then 
successively first, second, third, fourth and fifth mort- 
gage bonds, and income bonds, all or part of which 
may be sold to a company which, wishing to borrow 
money on them, deposits them with a trust company 



40 ECONOMICS. 

and issues collateral trust bonds against them. The 
purchaser of these latter hypothecates them with the 
bank where he keeps his account, borrowing perhaps 
80 per cent of their face value on them, and giving 
his note for the amount, which note thereby becomes 
a part of the bank assets. Here are seven pieces of 
paper all representing the same piece of property, and 
yet each is counted separately in estimating the coun- 
try's wealth. If all the wealth existing purely on 
paper, and all which has been created by simply 
"marking up" the value of land were eliminated, it 
would be found that the wealth of the world is very 
small, considering the time it has required to accumu- 
late it. 

In countries where the producing classes receive but 
a very small share of what they produce, employment 
is found for the "surplus" labor by keeping standing 
armies, and by the employment of large numbers of 
men and women as domestic and personal servants, 
and in other capacities where they consume but do not 
produce, and the more non-productive consumers there 
are, the smaller the share of what is produced goes to 
the producers. 

Capitalists whose capital is productively employed 
are almost as useful and necessary in a modern com- 
munity as workers are, but the bondholder whose capi- 
tal has been destroyed in war, or wasted in supporting 
soldiers, royalty and the like, and now exists only on 
paper; and the land-owner who produces nothing — 
they and their dependents and servants are a dead 
weight on the backs of productive labor and capital 

It is sometimes argued, and I formerly entertained 



ECONOMICS. 41 

the same opinion, that there would be nearly as many 
people out of employment as at present if intemper- 
ance, dishonesty and incompetence did not exist; it is 
maintained that the search for work is like a race in 
which all cannot win, and if all were honest, temperate 
and industrious, as many of these would have to be 
constantly idle as there are now idle among the 
drunken, lazy and dishonest. But, after longer obser- 
vation, I think this is a mistake. In almost every large 
establishment, and in many small ones, there are posi- 
tions unfilled because the right people cannot be found 
to fall them ; places where a competent and industrious 
man or woman would earn enough for his or her own 
support and a profit for the employer, but where the 
employment of a drunkard or a thief would result in 
loss. As a consequence these latter are left almost 
constantly out of work, where they live on the earnings 
of the rest of the community, and both production and 
consumption are smaller than if they worked. Ob- 
viously, if three persons work and support a fourth 
in idleness, all four must collectively be worse off 
than if all worked. 

Although a criminal, whether in confinement or at 
liberty, usually eats two or three meals a day, always 
wears clothes of some sort, and consumes more or less 
whisky, beer and tobacco, his average consumption is 
nothing like what it would be if he were constantly 
and productively employed, but as he produces noth- 
ing, all that he does consume must be provided for 
him by those who do work. It is unfortunate that it 
is not more generally understood that criminals who 
do not work add materially to the burdens of produc- 



42 ECONOMICS. 

tive labor and capital. If this were understood by all 
members of trades unions they would not urge the 
compulsory idleness of the prisoners confined in our 
prisons and reformatories, which is cruel to the prison- 
ers themselves, injurious to their physical and moral 
welfare, and makes their support a tax which is paid 
in part by land-owners and capitalists, but largely by 
the laboring classes. 

While it is best for the whole community that labor 
and capital should all be constantly employed, it would 
be well if many of the forms of production in which 
both are at present engaged could be changed, and 
that they will be changed with the spread of knowl- 
edge I have no doubt. When a man sends his bare- 
footed child to the saloon with a dime for a bucket of 
beer, he starts the dime in circulation and benefits the 
saloon-keeper, the brewer and their employes, but if 
he spent the dime for stockings for the child he would 
benefit labor and capital to the same extent and the 
child would have the stockings besides. In buying 
the stockings instead of the beer he causes the diversion 
of a certain amount of labor and capital from the man- 
ufacture of beer to that of stockings. 

All the capital and labor now devoted to useless or 
worse than useless purposes, such as the manufacture 
of articles prejudicial to the general welfare, and the 
support of armies and navies, could be profitably em- 
ployed in cleaning and improving the dirty streets 
and filthy alleys in our cities and towns, in making 
good country roads, in irrigating our immense areas 
of arid lands in the West, which need only water to 
make them capable of supporting millions of inhabi- 



ECONOMICS. 43 

tants, in building better dwellings, in building ship 
canals within the borders of our own country, and in 
many ways from which all would derive benefit. When 
the majority of our people come to understand these 
things they will not deem it necessary to subjugate 
natives in the antipodes to provide markets for our 
manufactures. 

It appears to me that we sadly need more original- 
ity and diversity in the investment of capital and the 
employment of labor, that we should provide for the 
satisfaction of wants, of which there are many now 
unsatisfied, and perhaps, to a large extent unrealized, 
instead of adding quite as rapidly as is now being 
done, to the means of producing articles which are 
already being produced in abundance, and could easily 
be still more rapidly produced by the plants already 
in existence. Too many of us, both capitalists and 
laborers, are engaged in trying to crowd others out 
of fields of industry already fully occupied instead of 
seeking new forms of investment and employment, or 
those only partially filled, of which there are still many 
in our country, although they are by no means as 
plenty or as obvious as they were a generation ago, 
when the general run of business men in America 
amassed, if not great wealth, at least comfortable com- 
petence with a rapidity and ease uncommon at the 
present day. 

Much has been said and written on the evil of ad- 
mitting all sorts of immigrants to this country, and it 
appears to be generally considered detrimental to the 
interests of those already here to bring in the poor 
and ignorant, even if strong and industrious. While 



44 ECONOMICS. 

I am not prepared to assert that this opinion is in- 
correct, there is something to be said on the other side 
of this, as of most questions. Is it not possible that 
poor and ignorant immigrants of a low order of intelli- 
gence, but possessing good health, bodily strength 
and a disposition to work, on their arrival in this 
country, crowd their way in at the bottom, forcing 
those already here into higher positions ? Most of the 
kinds of work which were done in this country a 
generation ago by Irishmen ar*? now performed by a 
less intelligent class of immigrants, and the Irish have 
not suffered thereby. They have been pushed up- 
stairs, not down. No one, I am sure, will more read- 
ily admit than my Irish friends, that it is both pleas- 
anter and more profitable to be an alderman, a police- 
man, a fireman, or even to keep a well-paying saloon, 
than to wield a pick or push a wheelbarrow. Many 
who were themselves formerly laborers are now fore- 
men over less intelligent workmen who have since 
come in. It seems fair to assume that these new 
comers are better off than where they came from or 
they would not continue to come, and if we, too, are 
better off for their presence, there appears no valid 
reason for keeping them out. This view does not con- 
flict with the ground already taken that all would be 
benefitted by more knowledge and education. The 
fact that the ignorant immigrants referred to would be 
better off if they knew more, does not conflict with 
the other fact that they are better off here than at 
home, and that their presence here is beneficial to 
those who came before, because they take their places 
at the bottom of the social pyramid, slightly raising all 



ECONOMICS. 45 

above them. But this reasoning applies only to physical 
welfare. The probable effects of lowering the average 
intelligence of the community by the admission of 
large numbers of ignorant immigrants furnishes a 
very strong argument on the other side of the case. 

While I believe the thorough education of the 
masses, and the greater development of intellect in all 
classes, to be the means by which the condition of all 
will be gradually improved, it is perhaps true that 
the connection between education and refinement be- 
comes less apparent as education grows more general ; 
and it is undeniable that if all were educated and in- 
telligent the advantage to the individual derivable 
from educaton and superior intellect would be much 
less than at present and in all past times, when their 
chief use is, and has been, to enable their possessors 
to get the better of those who lack them. If all 
possessed them, their possession would not, as at pres- 
ent, give one individual any advantage over another, 
but collectively the community would be vastly better 
off. It is obvious that if all were educated, then edu- 
cated people would have to do all kinds of work, in- 
cluding that now done only by the lowest and most 
ignorant classes, but the productiveness of labor would 
be so much increased, and the distribution of wealth 
so much less unequal than at present, that such work 
would have to be much better remunerated than it is 
now, in order to induce anyone to do it. Disagreeable 
and hard work might then command higher pay than 
that which is light and pleasant, instead of the reverse, 
as now. 



46 ECONOMICS. 

TRUSTS. 
In view of the popular opinion that the large aggre- 
gations of capital and consolidations of many different 
companies and firms into gigantic trusts and combi- 
nations are detrimental to the general welfare, and of 
the applause which usually follows their denunciation 
by politicians, and of the laws which have been passed 
in many states to discourage their formation, and if 
possible break them up, it may be regarded as a bold 
assertion to say that a well-managed trust contributes 
largely to the public good, and as one which is badly 
managed does not last long, there is little danger to be 
apprehended from any of them. In a recent conversa- 
tion with an acquaintance, one of whose friends' busi- 
ness was being ruined by a trust, it was explained to 
me that the trust made it impossible for him to com- 
pete with it by paying its laborers more than he could 
afford to pay and at the same time selling its product 
cheaper than he had ever been able to sell his. If the 
trust pays its employes more and sells its output 
cheaper than its competitors can, it looks to me as 
though a great many more people were benefitted than 
are injured by its existence . It must be admitted that 
the community in general is better off for the many 
labor-saving devices and machines which have come 
into use during the past century, and in all countries 
patent laws are in force for the encouragement of 
inventors. Yet no invention is of any value unless 
it enables fewer persons to do a given amount of work 
than were required to do a like amount before, thereby 
depriving the others of their former means of obtain- 
ing a livelihood, and the more people whom a given 



ECONOMICS. 47 

invention throws out of employment the more valuable 
it is, and the greater the wealth and honor accorded 
its inventor. The formation of a successful trust 
accomplishes the same end ; fewer persons do the work 
formerly done by a larger number, and usually do it 
better. The members of the trust, its employes an . 
the consumers of its products are benefited, while those 
deprived of employment suffer for the time being, all 
of which results are precisely similar to those brought 
about by the introduction of any other labor-saving 
device. It is undeniably true that up to the present 
time the result of all such devices has been to enable 
a comparatively few to live in extreme luxury, and to 
amass great wealth rather than to lighten the labor 
and increase the comforts of all, but all have unques- 
tionably derived some benefit from the larger output 
and receive more goods in exchange for a given 
amount of work than in any former time. 

Many trusts have been formed, and others doubtless 
will be, by men ignorant of economic laws, who be- 
lieve that with the command of enormous amounts of 
capital they can eliminate all competition and then 
buy the raw materials needed for their establishments 
and sell the manufactured products at almost any 
prices they choose to establish, but, as shown in the 
chapter on value, the effect of competition in fixing 
values is more apparent than real, and all trusts man- 
aged on this theory have resulted in disaster unless, 
profiting by experience, the policy has been changed 
before the passing of the concern into the hands of a 
receiver. It is absurd to suppose that competition 
could be done away with for long by widening the 



48 ECONOMICS. 

margin of profit in this way. No more effectual way 
could be adopted for increasing- it. To drive out com- 
petition, one must pay more for the raw material and 
sell the product cheaper than competitors can. What- 
ever the motives actuating the managers of a concern 
which does this, the public is benefited. Those trusts 
which have been successful do not owe their success 
to the elimination of competition, but have incidentally 
eliminated competition because they have relied for 
their profit, not upon any ability to buy cheaper or 
sell dearer than their competitors, but upon the cheap- 
ening of production by doing everything on a vast 
scale, the use of the most effective machinery, the 
utilization of by-products, the saving in freight effected 
by having several plants conveniently located and fill- 
ing each order from the plant nearest the consumer, 
the economy of management resulting from consoli- 
dation, the greater efficiency of labor, both physical 
and mental, resulting from discipline and from the 
possibility of the greater subdivision of labor, thereby 
keeping each employe always at that which he can do 
best, so that nothing is wasted owing to anyone having 
to spend a part of his time in idleness or in doing a 
lower or cheaper grade of work than the best he is 
fitted for. Trusts, depending on these factors for suc- 
cess, have succeeded and will continue to succeed; 
those which rely upon any supposed ability to widen 
the margin of profit by depressing the prices of crude 
materials and raising the prices of the manufactured 
products; those whose managers expect to market a 
large output at a high price, and those who make the 



ECONOMICS. 49 

profits of the business secondary to manipulation of the 
stock market, will all, sooner or later, come to grief. 

It is true that a trust, having driven all competitors 
from the field, could for a time, do a small business at 
a high rate of profit rather than a large business at a 
small margin; but even if attempted for a time, this 
could not be continued long. New competitors would 
spring up; old ones would resume operations; it 
would be necessary to suspend production at frequent 
intervals to avoid producing a glut, the only way to 
sustain the market being by limiting the supply, and 
managers of large concerns have found by experience 
that it is more economical to run, even at a small loss, 
than to close down. Machinery rusts out faster than 
it wears out, skilled labor moves away, high salaried 
officers, superintendents, salesmen and the like must 
be kept on the payrolls; taxes, interest, and insurance 
go on just the same ; operatives must live all the time 
even though they work only a part, so demand higher 
pay for irregular than for steady work. It is therefore 
soon learnt that it is, in the long run, more profitable 
to continue production on a scale suited to the capacity 
of the works, and dispose of the output at such prices 
as the public will pay, than to attempt to maintain 
high prices by limiting production. 

Several thousand persons using the most effective 
machinery, doing everything in the quickest and most 
economical known way, each doing all the time that 
which he knows best how to do, working in an estab- 
lishment where strict discipline is maintained, under 
constant and skillful supervision, all under one man- 
agement, having control of unlimited capital, produce 



50 ECONOMICS. 

SO much more than an equal number working in the 
old-fashioned way, that it is perfectly possible for them 
to be as well, or even better paid, than if the trust had 
never existed, and at the same time for a few persons 
to derive very large incomes from the excess of wealth 
produced, over and above what the same number of 
workers would have produced, each working for him- 
self, or if employed in small establishments. In the 
present stage of civilization this excess belongs to 
those who, by their energy and ability for organiza- 
tion, cause its production. When, generations hence, 
a higher civilization becomes general, all those who do 
their best may be considered entitled to the same re- 
ward, regardless of whether the result be failure or 
success, but we are still a long way from that. 

We have seen that the public, the operative and the 
stockholder may all be benefited by the consolidation 
of many businesses into one, the only parties injured 
being the proprietors of smaller establishments, which 
are left out of the combines and are unable to compete 
with them. If the motto of "the greatest good to the 
greatest number" be accepted, their welfare is not to 
be taken into the account; but let us consider them. 
Some must find other employment, and, unfortunately, 
it is likely to be those least capable of doing so. Others, 
owing to their ability to influence a certain amount 
of business, or to skill in some branch of manufac- 
ture, are, upon giving up the struggle, frequently 
offered positions with the trust at salaries nearly, or 
quite, equal to their former average incomes, and 
while, perhaps, longer hours may be exacted and a 
degree of discipline enforced which is irksome, these 



ECONOMICS. 51 

disadvantages are, to some extent, compensated by 
the lack of care and anxiety, and by the certainty of a 
regular income. It sometimes happens that a large 
establishment can afford to, and does, pay a man who 
has been moderately successful in business for him- 
self, a larger salary than the income he previously 
earned for himself, because the value of his services 
are greater to a large than to a small concern, or he 
may be lacking in some point which, while preventing 
great success in an enterprise under his sole manage- 
ment, is not brought into play at all in the larger 
sphere, where the division of labor places is under the 
direction of some one strong in that particular. Many 
men who have failed in business for themselves, have 
afterward been eminently successful as heads of de- 
partments in large establishments where a general line 
of policy is mapped out for them, or where some one 
else passes on credits or regulates expenditures. Such 
a man may know far more than the president or man- 
ager of the trust about his particular department and 
yet be incapable of running it successfully without a 
certain slight amount of guidance from the latter 
source. This slight guidance may apparently amount 
to little, and is doubtless often deemed a hindrance 
by the department manager, and yet it may make all 
the difference between a handsome profit and a round 
loss at the end of the year. 

In a very large establishment it is possible to econo- 
mize to the fullest extent the time of high-salaried em- 
ployes, and no one competent to fill an important 
position need be kept long in an inferior one. The 
managers of a trust wishing to get its work done as 



52 ECONOMICS. 

cheaply as possible, err much oftener by putting too 
cheap a man into an important position than by keep- 
ing one of marked ability in an inferior one. But 
the longer a trust exists, the more liberal its managers 
usually become in the payment of salaries. Concerns 
which have grown to enormous size with mushroom 
rapidity under the control of men of great energy and 
executive ability, who give close personal attention 
to details, and are impatient of any division of au- 
thority, sometimes get on for a considerable time with 
very cheap help, even in important positions, resort- 
ing to all sorts of devices to cause employes to think 
their own services of little value, adopting a system 
of bookkeeping whereby every department is made to 
show a loss, making the most of every error in judg- 
ment and belittling every success. But this policy 
usually results in the accumulation of a corps of em- 
ployes whose abilitiy lies chiefly in the direction of 
fooling those above them, rather than in making money 
for the company, and after a longer experience it is 
found more profitable to pay higher salaries to men 
capable of taking greater responsibilities, and on whom 
more dependence can be placed, so that many of the 
latter class receive as high remuneration for their work 
as similar men in business for themselves, before the 
advent of trusts, realized from their own establish- 
ments. 

It is the economics possible in production and dis- 
tribution on a large scale rather than any ability to 
buy cheap and sell dear, which enable trusts to sup- 
plant smaller establishments. A very large buyer 
entering the market finds it more difficult to supply 



ECONOMICS. 53 

his wants without advancing prices than a smaller 
buyer would, and a very large holder of goods de- 
presses the market more in unloading than a small 
producer would. Large buyers often resort to the 
most ingenious expedients to conceal the magnitude of 
their wants, and nearly always find it possible to buy 
a moderate amount of goods at a lower price than a 
very large amount, so that up to that point the small 
dealer is not at a disadvantage as compared with the 
larger one, and where it is merely a question of resell- 
ing goods in practically the same condition as they 
were bought, as in the competition between very large 
stores and smaller shops, I confess to an inability to 
discover wherein the former has any great advantage 
outside of greater skill in management, and the ability 
to both buy and sell for cash. It may be true that 
the small dealer does not, as a rule, sell as cheap as 
the large store does, but this, I think, is less owing to 
his inability to do so than to the fact that the small 
dealer who buys and sells only for cash and on the 
same margin of profit as his larger neighbor, soon 
ceases to be small. 

If my reasoning is correct, the same policy which 
makes a trust a success from its stockholders' point 
of view, also makes it a useful institution to the com- 
munity. 

But there is another side to the picture. When a 
trust is organized, by men who believe it is easier to 
acquire wealth than to produce it, for the purpose of 
unloading on the public all the stock and bonds which 
can be floated, as several have been, and then wrecking 
the whole concern, the transaction is one of pure and 



54 ECONOMICS. 

simple robbery; but if stockholders put robbers and 
wreckers in charge of their properties, they should 
not be surprised when they are robbed and their en- 
terprises wrecked. Those who buy stock in these 
speculative trusts often understand that the whole 
business is eventually going to the dogs, but expect to 
unload their holdings onto someone else while the 
market is up, and it is not worth while wasting much 
sympathy on those who fail in doing so, any more than 
on any other gambler who knowingly takes a chance 
and loses. If the public will insist on playing with 
the fire it must expect occasionally to get burnt. The 
gambling spirit is innate in the human race, and stock 
speculation is, perhaps, as good a way as any other 
for giving it vent. At this game one makes what 
another loses, and the wealth of this community, as a 
whole, is not affected, except that it pays for its 
amusement and excitement to the extent of the brokers' 
commission just as it pays for any other form of 
amusement. The percentage against the player is 
larger than in faro, but smaller than in horse-racing, 
and the game is lawful and considered respectable. 

Trusts formed for the purpose of regulating the 
market values of the crude materials which they use, 
or of the goods which they manufatcure, either change 
their policy or come to grief sooner or later, as already 
stated, but while they last they do some harm. They 
usually restrict production for a time, thereby use- 
lessly throwing working people out of employment 
and compelling economy in consumption. The arti- 
ficial scarcity is always followed by a glut, and the 
higher prices go under the trust's manipulation, the 



ECONOMICS. 55 

lower they go when it has to let go, as it always does 
in the end. In the meantime, the consumer who has 
been compelled to put up with an insufficient supply is 
not compensated by having it in his power, afterwards, 
to buy more than he wants ; and the working man or 
woman who has been out of work for some time is 
not recompensed for weeks of privation and anxiety 
by simply being taken on again. 

Of the hundreds of trusts of all kinds lately formed 
comparatively few will, probably, fulfill the expecta- 
tions of their stockholders, and many will result in 
failure, more or less complete, owing to the causes 
just outlined ,to lack of experience, incompetence, dis- 
honesty, speculation, extravagance, and want of knowl- 
edge of economic laws, on the part of those in charge, 
for there are, apparently, more trusts and very large 
corporations already in existence than there are men 
with the intelligence, knowledge and experience requis- 
ite for their successful management. The less experi- 
enced the managers, the more they try to bring about 
the desired results by openly aggressive means, the 
more confidence they have in their ability to control 
values, crush their rivals and otherwise accomplish the 
impossible, and their efforts in these directions not in- 
frequently result in their own downfall. 

The trusts which succeed will, I think, gradually 
accomplish much good as object lessons illustrating 
the benefits derivable from co-operation as compared 
with competition. The competitive instinct is born 
not only in the human race, but extends to the animal 
kingdom; colts playing in a field try to outrun one 
another, and male animals of most species fight, often 



56 ECONOMICS. - 

to the death, on their first meeting, but even animals 
and savages learn that "in union is strength," and 
tribes of both are formed for co-operatiOn in warfare, 
offensive and defensive. That the desirability of 
co-operation among business men must have been 
understood at a comparatively early date is shown by 
the formation of guilds and corporations, but its ad- 
vantages were afterwards, to a large extent, lost sight 
of, and until very recently competition was in this 
country almost universally regarded as "the life of 
trade." In this, as in many other ways, the maximum 
of happiness can only be attained by the repression of 
our natural impulses and instincts. 

Trusts formed by capitalists on one hand and trade- 
unions composed of workers on the other, when wisely 
and honestly managed, may both prove of incalculable 
benefit as object lessons demonstrating the advantages 
of co-operation and the absurdity of competition. May 
we not hope that it will eventually dawn on the minds 
of the members of both that their interests are recip- 
rocal, and the result be a fair division of a vastly 
increased product? 

GOVERNMENT OWNERSHIP OF RAILROADS 

The reasoning in the chapter on trusts, that only 
those which are beneficial to the public will survive, 
while those which are detrimental will bring about 
their own downfall, is not applicable to railroad com- 
panies. The power which these possess to enrich or 
impoverish not only individuals, but whole communi- 
ties, is too great to be safely intrusted to any corpora- 



ECONOMICS. 57 

tion or set of men who have no check on their greed 
except their own consciences. 

The enormous waste caused by competition among 
railroads is a great and unnecessary strain upon the 
resources of the country, and the bribery and corrup- 
tion by which their managers obtain desired legisla- 
tion, influence decisions, and secure the election of 
officials of their choosing, has a demoralizing influence 
upon the morality of the whole nation. 

The oft quoted remark, that "the question of the 
government taking the railroads has been settled by 
the railroads taking the government," is apparently 
true at present, but great revulsions of public opinion 
are not unknown in this country, and it is within the 
possibilities that, at some future time, possibly sooner 
than now appears probable, our people will refuse to 
listen longer to arguments got up by politicians, osten- 
sibly to prove that the kind of money in use makes 
them rich or poor, but in reality to distract their minds 
from issues of real and great importance; or to have 
their attention diverted from these real issues by such 
devices as a foreign war, this latter having been one 
of the stock tricks of governments in all past times 
for quieting discontent at home, and will make the 
government ownership of railroads a prominent issue 
in politics. A few of the advantages derivable from 
such ownership are economy in operation, better and 
quicker service, lower and equal rates of freight and 
fare to all, the less unequal distribution of wealth, 
avoidance of waste of capital by building parallel lines, 
and the employment of more labor consequent upon 
heavier traffic. 



58 ECONOMICS. 

A vast saving in the expense of operating the rail- 
roads of the country would be effected by eliminating 
competition, and placing all under one management. 
At present the lowest freight and passenger rates are 
made by the most indirect lines. Under natural con- 
iditions all freight and nearly all passengers would go 
from one given point to another by the line combining 
the most advantages, such as short distance and easy 
grades, but under existing traffic agreements such 
lines are compelled either to charge higher rates or 
bring their service down to the level of the line hand- 
ling the business at the greatest disadvantage. If a 
straight line with easy grades and up-to-date equip- 
ment puts on a faster train, say from New York to 
Chicago, than its competitors can conveniently run, 
the latter combine and force the progressive road to 
abandon the train or else charge extra fare. So it is 
with freight, the most indirect lines, and those pos- 
sessing the poorest facilities for handling the business, 
make the lowest rates. If this were not the case they 
would not get any business at all. By this system the 
public never gets the best service of which the best line 
is capable, and always pays rates based on the cost to 
the poorest equipped line handling any part of the busi- 
ness. Under government ownership goods would be 
forwarded by the most direct line, and rates would 
be based on the cost of the service by that line, not 
by the poorest, as at present. Shipments between 
important points would go by trainloads, not carloads, 
as now. If a hundred cars of freight, on an average, 
move daily from one city to another, distributed among 
ten different routes, each getting ten carloads, these 



ECONOMICS. 59 

cars are put into trains composed of cars destined 
to many different points, the trains are taken apart at 
frequent intervals, all along the route, and much time 
and labor wasted in switching the cars back and forth, 
taking one train apart, and, after an interval of hours, 
or perhaps days, making up another. With all the 
roads under one management, shipments between large 
cities could be routed so as to insure solid trains from 
point of shipment to destination. 

I have no means of ascertaining what proportion 
of the total number of passengers are furnished free 
transportation, but everyone who travels much, knows 
the number to be enormous. Obviously, those who 
pay must pay for their own transportation and for that 
of those who do not pay. An enormous saving would 
be effected by not hauling any deadheads. 

In means of travel and transportation, as in many 
other things, we are too apt to compare the present 
with the past, rather than with what might be. We 
are too easily satisfied. For instance, a Pullman sleep- 
ing car may be a luxurious mode of conveyance com- 
pared with a stagecoach, but compared with what 
can easily be imagined in the way of a luxurious car, 
or with other sleepers which have been invented and 
suppressed, it is a long way behind the age. There 
are few more uncomfortable places on earth on a hot 
summer night, on a dusty road in the South, than a 
berth in a Pullman sleeper. Under government own- 
ership it would be perfectly practicable to furnish a 
clean, well-ventilated, private apartment, where com- 
fort and privacy could be secured, and where neither 
decency nor the laws of health need be violated, for a 



60 ECONOMICS. 

lower charge than is now exacted for a shelf in a car 
where gaudy furnishings are the chief attraction, and 
where everything else is sacrificed to arrangements for 
carrying the greatest number of passengers at the 
minimum cost. 

The large sums spent in advertising would all be 
saved. 

The army of intelligent and industrious men now 
wasting their energies as freight solicitors could be 
far more usefully and productively employed in other 
ways. 

A large amount of clerical work would be saved 
which is now necessitated by each road having to keep 
accounts with the others. 

All freight would go through without transfer. 

The labor of all the people at present employed by 
fast freight lines would be released for more produc- 
tive employment. 

The profit now going to owners of private cars, both 
passenger and freight, in mileage paid on sleeping 
cars, parlor cars, refrigerator cars, etc., would be all 
saved; so would the excessive bridge tolls, terminal 
charges, and the arbitraries now paid for short hauls. 
Small roads would not have to handle their business 
expensively for want of modern equipment. 

The presidents of some railroad companies are said 
to receive salaries as high as $50,000 a year. No such 
salaries would have to be paid under government 
ownership. The best railroad talent could be obtained 
for half the money. 

The sums spent annually to influence legislation, 
bribe officials, and defend damage suits would all be 



ECONOMICS. 6l 

saved, as would also the enormous losses sometimes 
caused by strikes. 

Better service would be secured because, under gov- 
ernment ov/nership, no one would be a gainer by fur- 
nishing poor service. There could be no conceivable 
reason for crowding cars or having trains by different 
routes between the same points start all at the same 
time. Where the distance between given points is 
shorter by one route than by others, the fare by the 
shortest and quickest route would be the lowest, not 
the highest, as now. Sleeping car and dining car 
accommodations would be within the reach of all. 

Economy in management and operation and in- 
creased traffic would make far lower rates possible, 
and the increased traffic in conjunction with the 
shorter hours of labor which would be required of 
government employees would render necessary the em- 
ployment of many more operatives than now, better 
wages would be paid, and the market value of all 
labor throughout the country would be raised. Prob- 
ably the greatest of all the benefits derivable from 
government ownership is that the rates of freight 
would be alike to all. Discriminations in freight rates 
have probably built up more lai^e fortunes in this 
country than any other cause except the increase in 
the value of land, and nothing short of government 
ownership can entirely prevent such discriminations. 
The ways by which anyone filling an important posi- 
tion in the management of a railroad can enrich him- 
self and his friends are many, easy, and obvious. The 
process consists merely in making contracts between 
oneself in one's official capacity and oneself as an 



62 ECONOMICS. 

individual. This may be done to a moderate extent, 
so the individual is gradually enriched to the extent 
of a few millions while his company continues to 
prosper and pay dividends, or it may be carried to 
the length of appropriating the entire net earnings of 
the company and gradually absorbing its capital. By 
the latter method, carried to its extreme length, it has 
been possible for property worth fifty or sixty mil- 
lions to be accumulated during the life of a single 
individual. Under the most corrupt political admin- 
istration it could be no worse than this, and it could 
not be carried on as long by the same men, for suc- 
cessive politicians would have a chance at the stealing 
and the wealth would be more widely distributed. 
Under present conditions the "cinch" is handed down 
from father to son, and may remain indefinitely in the 
same family. 

The fact that in those European countries where 
the railroads are owned by the government the rates 
are not lower or the service better than here, proves 
nothing. I have never heard it claimed that any at- 
tempt was ever made to run those roads for the good 
of the people. And conditions over there are so differ- 
ent from those prevailing here as to render any intelli- 
gent comparison impossible. 

Neither can I see that the fact of our already hav- 
ing lower freight rates than exist in other countries 
is a valid reason for not trying to get still lower ones. 

Coming to the question of how to raise the capital 
to pay for the railroads, nothing is simpler. No new 
capital would be required. It is only a question of 
the transfer of capital already in existence, not alto- 



ECONOMICS. 63 

gether unlike that which takes place when a railroad 
company is reorganized, and the holders of the old 
securities exchange them for new and better ones. As 
explained in the chapter on interest, there is hardly a 
railroad in the country, if any at all, which does not 
pay running expenses and some profit on the capital in- 
vested. This profit is usually absorbed in the payment 
of unreasonable interest on bonds, or in other ways 
best known to railroad accountants; but, taken as a 
whole, the railroads of the country pay a fair net 
profit on their total capitalization, water and all, under 
their present management. If acquired by our gov- 
ernment at a just valuation it would be a difficult mat- 
ter to keep them from paying more than 5 per cent. 
Our present 3 per cent bonds sell at a premium. With 
the additional assets of all the railroads in the country 
behind them, bonds paying 2^ per cent would sell at 
par, or higher. All the railroad bonds and stock now 
in existence would be canceled, and the present holders 
of those securities would be invited to take govern- 
ment bonds in their stead. 

The net earnings of the railroads would be devoted 
to the payment of the interest on the bonds, and the 
surplus over and above the amount required for this 
purpose could be applied towards the payment of the 
principal. 

Not only would nearly all the holders of the present 
railroad bonds and stock be glad to exchange them on 
equitable terms for government bonds, but thousands 
of capitalists, large and small, throughout the country, 
would be glad to invest in diese bonds, and they 
should be issued in such denominations as to make 



64 ECONOMICS. 

them a practicable investment for the savings of the 
poor, thereby furnishing a government savings bank 
without the objectionable feature of anyone having to 
be taxed to pay the interest. 

While opposed to the issue of government bonds to 
raise money to pay current expenses, pensions, or for 
military and naval equipment, I can see no objection 
to their issue where the proceeds are applied to the 
purchase of property yielding a larger annual net 
income than the interest on the bonds, so that a sur- 
plus is applicable to the extinguishment of the debt, 
and no one need ever be taxed for the payment of 
interest or principal. 

If the government ownership of the railroads should 
prove undesirable, the roads could be sold at a profit 
because, when consolidated under one management, 
the advantages and economies of such consolidation 
would be so apparent, and the net earning capacity 
of the roads would be so increased, that the value of 
the property as a whole would be thereby vastly in- 
creased. 

INTEREST. 

Interesting as the subject is, it would perhaps be 
out of place, when discussing economics of the prac- 
tical variety, to argue the question of whether the 
exaction of interest at all is justifiable ; whether, when 
a lender receives back all he loaned, in as good condi- 
tion as when he loaned it, he has not received all to 
which he is justly entitled; but the average rate of 
interest in this country to-day being not much more 
than half what it was within my own memory, and 
the rate everywhere being much lower than it was 



ECONOMICS. 65 

a generation ago, makes it appear within the possi- 
bilities that a time may come when it will not be un- 
usual for capital to be loaned "flat" even on purely 
business principles, where the security is absolute and 
no risk is involved. Nearly all forms of property 
deteriorate rapidly and must be repaired or replaced 
at short intervals, so that a lender who gets back 
exactly what he loaned is often a gainer by the transac- 
tion. 

Capital increases faster than population, and with 
the march of improvement it will, as time goes on, 
doubtless mcrease proportionately still faster, while 
the increase in population seems likely to be less rapid 
in the future than in the past. As the relative propor- 
tion of capital to labor increases, a smaller share of 
what is produced will go to capital and a larger share 
to labor. The next generation will, I think, regard 
2 per cent per annum as a fair rate of interest, and 
that would have been about the current rate now if 
governments throughout the world had not absorbed 
almost incalculable amounts of capital and wasted it 
in the maintenance of armies, navies, royalty, nobility, 
and other equally useless things, and at the same 
time sustained the rate of interest by being always in 
the market for capital, bidding against all comers for 
it. As long as national, state and city governments 
stand ready to pay 3 per cent and upwards for all 
capital offered, companies and individuals cannot bor- 
row for less, but with the extension of knowledge of 
finance and economics it is not unlikely that people 
will gradually realize the extent of the burden which 
government bonds impose, and their issue will become 



66 ECONOMICS. 

SO unpopular with the masses that governments will 
not attempt to issue them to the same extent as has 
been done in the past. 

In borrowing capital there is a very general tend- 
ency, as there frequently is in making purchases, to 
pay for what one hopes may be the result of the 
transaction rather than for what may legitimately be 
expected to result from it, and this general hopeful- 
ness has a tendency to keep rates of interest above 
what the borrower can pay in addition to fair pay for 
his time and reasonable interest on his own capital. 

If a man living in Julius Caesar's time had invested 
a sum equal to a dollar of our money at compound 
interest, and had given instructions that it be kept 
invested in that way at the current rates of interest 
and be handed down to the eldest son in the direct 
line of descent, and his wishes had been carried out^ 
all the property now in existence would belong to the 
present owner of the fund, and the earth's other in- 
habitants would be helplessly in debt to him. This 
tends to show that rates of interest have hitherto been 
too high — that borrowers have paid more for the use 
of capital than it is, on an average, worth to them. 

Many a business man, inexperienced in the manage- 
ment of large amounts of capital, has thought he 
could use additional capital to great advantage, and 
has undertaken to pay rates of interest so high that 
the borrowed capital, as well as his own, has been 
gradually absorbed in the payment of interest, so 
that after a lifetime of hard and honest work, and 
after he has really paid back both principal and a 
fair rate of interest, he has found himself bankrupt. 



ECONOMICS. 67 

This same thing has happened to nearly all the railroad 
companies in this country. They have, with hardly 
an exception, earned a fair rate of interest on the 
capital invested in them, but they have also, with 
few, if any, exceptions, been enormous borrowers of 
capital at higher rates of interest than the business, 
as usually managed, pays; and a large majority of 
them have, after defaulting in the payment of these 
impossible rates of interest, passed into the hands of 
receivers ; when this occurs a "reorganization" takes 
place ; each bondholder is given a new piece of paper 
in exchange for his old one, usually at a lower, but 
still too high, rate of interest; each stockholder pays 
into the treasury a certain number of dollars (to be 
again absorbed by the interest on the bonds ahead of 
him) per sliare of stock which he holds, for which 
he also usually gets a new piece of paper of some 
sort. Most of the roads in this country have passed 
through this process at least once, and many of them 
half a dozen times or more, and each time the game is 
worked some influential financier gets an enormous 
"rake-off" from the new capital which he succeeds 
in getting paid in. 

I do not know of a railroad in the country which 
does not pay its running expenses and some return 
on the capital invested in it, and if this capital had 
been contributed as stock, instead of bonds, every 
road in America would to-day be paying dividends, 
and not one would be in the hands of a receiver. The 
interest on their bonds takes all the net earnings of 
most railroads and gradually absorbs the capital con- 



68 ECONOMICS. 

tributed by the stockholders, just the same as the 
payment of too much interest ruins any other business. 
Government three per cent bonds command a pre- 
mium ; money in Wall Street loans on stock collateral 
at two to three per cent, and in London commercial 
bills are discounted at these rates. All these invest- 
ments involve a certain slight risk of loss, so it does 
not appear unreasonable to assume that the actual 
rate of interest, leaving out all risk, is, at present, 
not more than two per cent per annum; and, conse- 
quently, anything paid above that rate is for risk — 
for what economists designate as "insurance," but 
it appears to me that in this kind of insurance the 
wrong person pays the premium. If a business man 
borrows capital at six per cent he pays two per cent 
interest and four per cent for the risk which the lender 
is supposed to take, but if the borrower loses the 
money he is not released from the debt ; he has, there- 
fore, paid for insurance which he did not get. Even 
though he pay the four per cent insurance until it 
amounts to enough to pay off the principal, he is not 
released. In other words, those who borrow at interest 
pay not only the interest on what they borrow, but 
also pay both interest and principal for those who 
borrow and never pay, just as a man pays his tailor 
for his own coat arid for that of the customer who 
never pays. This is injustice, and I think that 
when the subject is more generally understood, capi- 
tal furnished for use in business will be considered at 
the risk of such business and if sunk therein the lender 
will have no recourse on the borrower beyond re- 
quiring him to show that he used the money as he 



ECONOMICS. 69 

agreed to use it, and that it was really and honestly 
lost. Then King Solomon's remark that "the bor- 
rower is servant to the lender" would no longer be 
true, for they would be partners. Honesty and in- 
dustry could not then result in bankruptcy, as they 
often have in the past. 

If all such devices as bonds and preferred stock 
were abolished and only one kind of paper, namely, 
common stock, were allowed to be issued by compa- 
nies, there would not be one in the hands of a receiver 
for every hundred there now. 

I have no quarrel with any capitalist who embarks 
his capital in any kind of enterprise he sees fit; so 
long as he takes all the risk he is fairly entitled to all 
the profit to which he is entitled if he win. But the 
other kind, who want all the profit, and more, while 
some one else takes all the risk and does all the work, 
should not be protected by law in their efforts to ac- 
complish the desired result. 

It is undeniable that many men have succeeded in 
amassing wealth for themselves while paying the 
usual rate of interest on borrowed capital, and have 
been enabled to enlarge their business much faster 
than it would have been possible to have done if they 
could have increased their operations only as fast as 
their own capital increased ; but these would have done 
just as well for themselves and those who furnished 
them capital if it had been understood that the cap- 
ital was, directly, at the risk of the business, and it is 
equally true that most men have an exaggerated idea 
of the percentage to be made on capital by men of 
average business ability and opportunities. One rea- 



70 ECONOMICS. 

son for the very general overestimate of the value of 
the use of capital is the underestimate of the value 
of personal services in connection with it; thus, a 
man who has $10,000 invested in his business, and is 
making an annual average income of $3,500, is apt 
to think he is making thirty-five per cent on his capital, 
whereas the truth, very likely, is that he could com- 
mand a salary of $2,500, and is really making only 
ten per cent on his capital, and it' is quite possible 
that he could not make even this on a larger amount. 
While many individuals and corporations have be- 
come bankrupt by paying higher rates of interest than 
the profits of their business warranted, many a lender 
has suffered from the same cause. Millions of dol- 
lars are annually invested by persons inexperienced 
in finance, in bonds on which the borrowing company 
or individual agrees to pay, and for a few years, per- 
haps, does pay, a higher rate of interest than its or 
his business warrants. Suddenly the interest stops, 
and an investigation discloses the fact that both bor- 
rower and lender are bankrupt — the borrower because 
he has paid more for the capital than his business 
admitted of, and the lender because he has adjusted 
his expenses to a fictitious income. No such result 
need have come about if it had been understood that 
the remuneration for the use of the capital consisted 
of a share of the profit, instead of a fixed annual sum 
irrespective of the profits or losses of the business. 
All capital used in any business is in reality at the 
risk of the business in which it is used, and it would 
be better for borrower, lender and the whole com- 
munity if this fact were generally understood and 



ECONOMICS. 71 

legally recognized. It is true, theoretically, that the 
borrower's own capital must be exhausted before that 
of the lender is trenched upon, but in most cases the 
former is invested in plant and other fixed invest- 
ments, so that it is not immediately available for the 
payments of debts, and in the case of railroads and 
other large corporations the common stock is usually 
pure water, so that the capital contributed by the bond- 
holders is immediately and directly at the risk of the 
business, although it is not always so understood by 
them. Instead of passing usury laws to regulate the 
rate of interest, which are often unjust, and can al- 
ways be evaded, it would be better to educate the 
prospective borrowers and lenders of capital so they 
could intelligently estimate its value, and the risk 
involved in its use for various purposes. And it 
would be better for both borrowers and lenders if 
all investments of capital, except, perhaps, temporary 
loans for short periods, were made for a share of the 
profits instead of a fixed rate of interest. Investors 
would then take a more direct and personal interest 
in the management of the enterprises in which their 
capital was ^embarked, thereby, frequently, checking 
waste, extravagance and fraud ; while, on the other 
hand, the energetic, enterprising men who are the 
largest borrowers of capital would get its use for 
about what it is worth, and would not, as is often the 
case under present conditions, pay the owners of the 
capital a good share of the profits when successful, 
and stand all the losses when such occur. 



^2. ECONOMICS. 

TAXES. 

To go thoroughly into the subject of taxation would 
increase the size of this little book beyond the limits 
set for it, and every public library contains so many 
valuable works devoted to that subject that I am 
only going to write a very short chapter on it. I 
believe in the single tax idea, not to the point of con- 
fiscating for the general good all past increase in 
land values, as advocated by Henry George in "Prog- 
ress and Poverty," but that a single tax on land is 
the fairest, the simplest, the most natural, the easiest 
and cheapest collected, and in every way the best 
form of taxation ever devised. And as some of my 
readers may not have had the time or inclination to 
read the able and exhaustive works of Mr. George and 
others, some of them written a century or more ago, 
advocating a single tax, I will try to show, in a few 
words, its justice and some of its advantages, in the 
hope that some who have not given serious thought 
to the subject may be induced to investigate it. 

To begin at the beginning, it is difficult to conceive 
how any human being ever got, or could get, a valid 
and exclusive title to any piece of land. Most titles 
run back to grants from some pope, lord, king, queen 
or other government who granted away what never 
belonged to them, and in the very nature of things 
could not have belonged to them, and a thing which 
was originally wrong cannot, by lapse of time, become 
right. What are called "Vested Rights" are almost, 
or quite, invariably "Vested Wrongs," and private 
ownership of land is the greatest of them. 



ECONOMICS. 73 

But we are discussing practical economies, and as 
it is not practicable in the present condition of public 
opinion to abolish such private ownership we will go 
no further in that direction than to advance as one 
reason why landowners should bear the whole burden 
of taxation the fact that they are using, or compelling 
others to pay them for the use of, that which of right 
belongs to all. 

The land owner is a sort of residuary legatee, who 
receives all the profits of nearly all industries over 
and above the usual rate of interest on loanable cap- 
ital and moderate wages for those engaged in them, 
and no injustice is perpetrated when he is required 
to give back to the public in the form of taxes a part 
of the income derived, without effort on his part, from 
that which he never produced. 

A tax on land is one of the few taxes which cannot 
be shifted from the shoulders of the rich onto those 
of the poor, or comparatively poor. A tax on buildings 
has a tendency to restrict their number, thereby help- 
ing their owners to obtain high rents for them. A 
duty on imports is always and immediately added to 
the selling price of the goods; obviously no one 
would engage in the import business unless this could 
be done. When a law is passed requiring a stamp 
to be attached to telegraphic messages, express re- 
ceipts and the like the company requires the sender 
of the package or the message to pay for the stamp. 
When a workingman votes that a street car company 
shall pay a part of its earnings into the city treasury 
as compensation for the use of the streets he, as a rule, 
has no idea that he is voting to shift a part of the 



74 ECONOMICS. 

expenses of the city government from the shoulders 
of land owners onto his own, but a very little reflec- 
tion shows that "compensation to the city" is simply 
an ingenious device for shifting the burden of taxa- 
tion from the backs of those who should bear it to 
those of the masses who ride to and from their daily 
work in the street cars. Supposing the companies to 
be required to pay twenty per cent of their gross re- 
ceipts into the city treasury, it is obvious that when 
a passenger hands a nickel to the conductor he is 
paying four cents car fare and one cent tax. I have 
seen it stated in the newspapers that Glasgow is a 
"city without taxes" because the income from the 
street railways pays the entire cost of running the city 
government. If this is true, which I believe it is not, 
then Glasgow should not be described as a "city with- 
out taxes," but as a city where the patrons of the 
street cars pay all the taxes, and where those who 
use more aristocratic modes of conveyance pay none. 
But a tax on land must be borne by the owner; he 
cannot shift it onto anyone else. As explained in 
the chapter on values, all values are determined by 
supply and demand. The amount of land in existence 
could not be decreased nor could the demand for it 
be increased by the fact that its owners had to pay 
more or less taxes, and rents would, therefore, not be 
affected except that owing to the fact that taxes would 
be the same on unimproved as on improved property 
owners of the former would find it to their interest 
to improve it, thereby increasing the supply and di- 
minishing the rent of improved property, so that if all 
other taxes were removed, and a single tax on land 



ECONOMICS. 75 

substituted for all others, the masses, who live in 
rented houses or flats, would be doubly benefited. 
They would be saved the sums they now pay indi- 
rectly in duties on imports, in taxes on their personal 
property, etc., and would obtain the same houses or 
apartments, which they now occupy, or better ones, at 
lower rents. The owner of a home in the city or 
of a farm of reasonable size in the country would not 
find his taxes increased, because a large part, perhaps 
the larger part, of the taxes which he now pays are 
assessed on his buildings and improvements, and not 
on the land proper. If the single tax were in force 
the land would be taxed entirely irrespective of the 
improvements on it, a vacant lot just the same as one 
on which stood a sixteen-story building, and we should 
soon see fewer vacant lots. I am unable to under- 
stand why the owner of a piece of land who refuses 
to use it himself or to let anyone else use it should, 
for that reason, pay a smaller tax than the man who 
builds a home or otherwise makes use of his land 
must pay. 

PROTECTION AND FREE TRADE. 

Every country must, in the long run, import as much 
as it exports, except that creditor countries, like Eng- 
land, can import more, in value, than they export to 
the extent of the interest on the obligations of the 
citizens of other countries which are held by its citi- 
zens ; and debtor countries, such as the United States, 
must export more than they import, to the extent of 
the interest on the obligations of its citizens held by 
the citizens of other countries. 



y(> ECONOMICS. 

The interest on debts, public and private, due from 
one nation to another is nearly always paid in com- 
modities, not in money, so that debtor nations export 
more than they import, while creditor nations import 
more than they export. 

With the increase of wealth in this country, and as 
opportunities for the profitable investment of capital 
become fully occupied, American capital will probably 
be more and more invested in other and less advanced 
countries where higher rates of interest can be ob- 
tained; then those countries will have to send us 
more than we send them, and our imports will regu- 
larly exceed our exports ; but until then we must con- 
tinue to send them more than they send us. 

If, for a time, the exports from any particular nation 
exceeded in value its imports to such an extent that 
gold is imported, the increased supply of gold in that 
country will cause the value of that metal to decline 
there, or, in other words, prices there will rise, thereby 
checking exports. If, on the other hand, imports 
exceed exports to such an extent that gold is exported, 
the diminished supply of gold will cause its value to 
rise so that prices of commodities will fall, whereby 
exports will be stimulated and imports checked. If 
those simple facts were generally and clearly under- 
stood it is probable that fewer efforts would be made 
to artificially stimulate exports than are now made 
by the governments and citizens of most countries. 

It is sometimes advantageous for a country to im- 
port a commodity which it could produce more cheaply 
than that commodity can be produced in the country 
from which it is imported, because the labor and cap- 



ECONOMICS. yj 

ital of the importing country can be more profitably 
employed in other ways, on the same principle as a 
farmer who can plow better than his hired man may 
still find it profitable to hire his plowing done because 
he, himself, can employ his time more profitably at 
something else. 

Protection causes the diversion of labor and capital 
from their natural channels to others which, but for 
the protection, would be less remunerative, and the 
community is a loser to the extent of the difference 
between the profit which would be derived from the 
former as compared with the latter under natural 
conditions, without the protection. It is a mistake 
to suppose that any part of the labor and capital em- 
ployed in protected industries would remain idle if 
the protection were withdrawn from these industries. 
They would simply flow into their natural channels 
whereby the community in general would be benefited, 
the laborers would be as well, or better, off, but some 
capitalists might receive a somewhat smaller return 
on their capital. A community, as a whole, cannot 
be better off because of the diversion of its labor and 
capital from employments which are profitable under 
natural conditions to others which only pay capital- 
ists the average rate of profit, or more, by compelling 
consumers to pay a higher price for goods of domestic 
production than imported goods would cost if it were 
not for the protective tariff. 

If all duties on imports were removed we would, 
undoubtedly, import many more goods than at present, 
but we would also export vastly more. We would 
buy from other countries such goods as they can 

Lore. 



78 ECONOMICS. 

produce better or cheaper than we can, and we would 
sell to them everything which we could, under nat- 
ural conditions, produce better and cheaper than they 
can. The division of labor among nations, if free 
trade prevailed, would be like that in a well-regulated 
factory. Each would do that for which it, and its 
citizens, are best adapted ; all would enjoy many things 
which are now within the reach of only the rich, and 
all would get many things cheaper and of better quality 
than at present. 

I cannot see anything in free trade to cause a re- 
duction in wages. Admitting that we would import 
some things which we nnow produce for^ ourselves, 
we would have to produce, for export, much that we 
do not now produce at all, because, obviously, the 
foreigners would not give us their goods, and, conse- 
quently, every import would have to be paid for by 
an export of corresponding value. We could not con- 
tinually import more than we exported if we tried; 
but the exchange of commodities between any two 
countries does not, by any means, necessarily balance. 
It is the grand total of exports and imports between 
any one country and all others which must, in the 
long run, come out even. We may export to A and 
only import from B, in which event the imports from 
B will balance the exports to A except that we must, 
as already stated, export enough in addition to bal- 
ancing our imports to pay the interest on our indebt- 
edness to other countries. 

The policy adopted by many governments, of trying 
to stimulate foreign trade by encouraging exports, 
and simultaneously doing all in their power to prevent 



ECONOMICS. 79 

it by imposing high tariffs, is like the argument of 
those people who advocate protection because it raises 
prices, and at the same time denounce trusts for their 
efforts to accomplish the same result. If foreign trade 
is a bad thing both exports and imports should be 
discouraged. If it is desirable, then both should be 
encouraged because they are inseparable ; one cannot 
long exist without the other. 

Free trade would do more than any other legislation 
could do to defeat the ends of those trusts and com- 
binations which try to raise prices by restricting pro- 
duction, because the unrestricted introduction of for- 
eign goods would make such restrictions futile. 

It is sometimes argued that American consumers 
have to pay more for goods of American manufacture 
because these same goods are sold for lower prices in 
foreign than in domestic markets, but the reverse is 
often true. This state of affairs demonstrates the 
correctness of the argument that there is no necessary 
connection between the cost of production and value; 
hut it does not, by any means, prove that the domestic 
consumers pay more than they would otherwise have 
to pay because of the comparatively lower prices at 
which the foreign consumer is supplied. No Ameri- 
can manufacturer would be so foolish as to sell his 
goods below cost in foreign markets, and then try 
to recoup the loss by raising the price to domestic 
bvyers. It would be more profitable for him to pro- 
duce only as much as the home market would take at 
the same price as though the foreign trade existed. 
What the shrewd manufacturer really does is to sell 
all he can to the home trade at the highest prices he 



80 ECONOMICS. 

can charge without bringing in foreign competition, 
and then he disposes of the remainder of his output, 
further away, in open competition, at such prices as 
he can get, as long as they cover the actual net cost 
of manufacture and transportation, and pay something 
towards fixed charges, and as long as the average of 
the prices obtained for the goods sold in both foreign 
and domestic markets is higher than he could obtain 
by selling an output of the same magnitude at home. 
If this latter were attempted prices of many commodi- 
ties would go so low that their production would soon 
have to stop altogether; and if production were re- 
stricted to what the home market would take at a 
fair profit the cost of production would be so increased 
that prices would have to be raised higher than those 
now paid by the domestic consumer even though the 
foreigner is supplied for much less. 

This same line of reasoning applies to all lines of 
business. A merchant whose usual gross profit is ten 
per cent on the amount of his sales, and whose annual 
fixed expenses absorb seven per cent of his average 
business, still finds it profitable to make certain sales 
for a gross profit of five per cent, after having satisfied 
himself that a higher rate cannot be obtained. All 
his expenses go on the same whether these particular 
sales are made or not, so that the gross profit on them 
is all net gain in the same sense as the amount which 
a manufacturer receives from the sale of a by-product 
is all profit, although the business in both cases is, in 
another sense, done at a loss; for if all the business 
done were on the same basis a disastrous loss would 
be shown by the balance sheet at the end of the year. 



ECONOMICS. 8l 

I know nothing about the actual cost of operating 
a railroad, but, to illustrate this same principle in the 
business of transportation, let us assume that the 
average cost of running a freight train is fifty cents 
per mile, including maintenance of way, of rolling 
stock, interest on bonds, and all other expenses; and 
that thirty cents per mile covers the net cost of fuel, 
wear on track and rolling stock, and wages of train- 
men, the remaining cost being made up of maintenance 
of roadbed, bridges, signals, wages of station agents, 
clerks and officers, and interest on the company's in- 
debtedness. Obviously, if the revenue from all busi- 
ness amounted, on an average, to only forty cents per 
mile for each train the company would lose money, 
but if a dollar or more per mile can be obtained for 
hauling first-class freight it will be found profitable 
to haul cheap and bulky goods, which would not move 
at all, or only in small volume, at a higher rate, for 
forty or even thirty-five cents per train per mile, be- 
cause that rate will pay the net cost of running the 
train and something towards the fixed charges, thereby 
materially reducing the cost of handling the more 
profitable business. This principle was long ago given 
expression by railroad men in their maxim of charging 
"all the traffic will stand," in which there is less in- 
justice than is at first sight apparent. The same is 
often true of the custom of selling goods for export 
cheaper than for domestic consumption, and we often, 
doubtless, get the benefit, on this principle, of lower 
prices for goods which we import than the consum- 
ers in the countries where they are produced pay for 
them. 



Quo Vadis Henryk Slenkiewlcz 

Reproach of Annesley.. Maxwell Gray 
Reveries of a Bachelor. D. G. Mitchell 
Romance of Two Worlds. .Marie Corelli 

Rouiola Georpe Eliot 

Saddle and Sabre Ha wley Smart 

Samantha at Saratoga. Marietta Holley 

Scarlet Letter, The Hawthorne 

Secrets of the BastilcWm. Parmiter Kent 

Shadow of a Sin Bertha M. Clay 

Shadowed to Europe.. .James Mooney 
Ships that Pass in the Night. .Harraden 

She H. Rider Haggard 

Sign of the Four, The. ..A. Couan Doyle 

Silas Marner George Eliot 

Sister's Love, A W. Heiml)urg 

Sketch Book Washington Irving 

Son of Clemenceau.The. Alex. Dumas, Jr. 

Son of Porthos, The Alexandre Dumas 

Spy, The J. Fenimore Cooper 

Squire's Darling, The. .Bertha M. Clay 
Story of An African Farm. .Olive Schreiner 
Story of a Wedding Ring. .Bertha M. Clay 
Strange Case of Dr. Jekyll and Mr. Hyde. 

Robt. L. Stevenson 

Strange World, A M. E. Braddou 

Study in Scarlet A. Conan Doyle 

Sunshine and Roses The Duchess 

Terrible Temptation, A.Charles Reade 

Thelma Marie Corelli 

Thorns and Orange Blossoms. .B. M. Clay 

Three Guardsmen Alex. Dumas 

Three Men in a Boat. . .Jerome K. Jerome 
Three Red Knights. The. DeFeval 
Thrown on the World. . .Bertha M. Clay 

Tillyloss Scandal J. M. Barrie 

Toilers of the Sea Victor Hugo 

Tour of the World in Eighty Days. . Verxie 



Tourmaline's Time Chequss.F Anstey 

Tramp Actor Elliott F. Barnes 

Treasure Island Robt. L. Stevensoa 

True Magdalen Bertha M. Clay 

Trumpet Major Thos. Hardy 

Twenty Thoiisand Leagues Under the Sea. 
Jules A'erne 

Twenty Years After Alexandre Dumaa 

Two Orphans R. D'Ennery 

Uarda George Ebers 

Umlercurrents The Duchess 

Undine De LaMotte Fouque 

Urania Camille Flammarion 

Vendetta Marie Corelli 

Vicomte de Bragelonne. Alexandre Dumas 

Walter's Wooing Bertha M. Clay 

Weaker Than a WomanBertha M. Clay 

Wedded and Parted Bertha M. Clay 

Wee Wifie Rosa N.Carey 

We Two Edna Lyall 

W^hat'sBred in the Bone. Grant Allen 
When a Man's Single... J. M. Barrie 
White Company, The.. .A. Conan Doyle 

Wife in Name Only Bertha M. Clay 

Wife's Sacrifice, A R. D'Ennery 

Window in Thrums J. M. Barrie 

Winsome but Wicked. ..Maud Meredith 
Woman Against Woman Mrs. M. E. Holme* 

Woman's Error, A Bertha M. Clay 

Woman's Face, A Florence Warden 

Woman's War, A Bertha M. Clay 

Won at Last Beatrice Marean 

Won by Waiting Edna Lyall 

Wooed and Married Rosa N. Carey 

Wormwood Marie Corelli 

Worth Winning Mrs. Lovett Cameron 

Young Girl's Love. A. . . .Bertha JLClay 



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